Register of allocations

The concept of Management Rights in Queensland was invented on the Gold Coast back in the 1970s. Back then the accommodation for tourists was confined to Caravan Parks or Motel which were normally owned by an individual who lived on-site to run their business. High rise holiday resorts were then constructed and the Management Rights Industry was born. Out of necessity, investment owners of holiday apartments needed someone to look after their Holiday Resort complex in a paid Care Taker role as well as to rent out their apartments when they weren’t using them. A formal Management Rights structure was created for this role and legislation was written into subsequent acts, the latest being the Body Corporate and Community Management Act of 1997 which covers the Management Rights industry today.

Types of Management Rights

There are many types of strata community schemes, consequently resulting in many types of management rights.

Holiday Letting

Holiday Letting relates to holiday and resort complexes which generally involves the caretaking of a high rise Resort-style tower as well as the short term letting of holiday apartments within the complex to holidaymakers. The workload is often more in these sorts of complexes as people constantly check-in and out of the resort often outside of Office hours. Of course in general, the reward is also higher with greater remuneration being paid and larger commission being collected (often upwards of 50%!). Whilst these types of management rights usually produce higher returns, they are much more demanding to run, requiring marketing skills, Office Hours and staffing. Income also fluctuates from month to month in line with tourism numbers and the overall occupancy.

Permanent Letting

Permanent Letting complexes, on the other hand, pertain to your typical residential apartment or townhouse complex. In these cases, the manager is sourcing and screening permanent tenants, conducting inspections, etc. The workload is usually much less, but the commission is usually far smaller as well (between 7-12% typically). These types of complexes are predominantly townhouses in gated or non-gated communities or three-floor walk-ups / small high rises in suburban areas. Whilst the caretaking for such complexes can be extensive, letting operations tend to be easily manageable with no marketing or long office hours required. Income is steady across the year, with no seasonal peaks and troughs.

Corporate Letting

Similar to holiday management rights, normally in CBD locations. Again, marketing skills and longer office hours are generally required to accommodate short term guests. Whilst returns can seasonal, they tend to be more consistent across the year than holiday buildings.

Student Letting

These types of complexes have become much more common in recent years. Stay periods often coincide with university semesters which can be very demanding on ‘changeover’ time but otherwise not as time-consuming as a holiday or corporate buildings with shorter stays. Ancillary income from internet and cleaning services can produce much higher returns than typical permanent letting operations.

What is Caretaking?

A major element of any management rights business is an agreement with the body corporate to look after the common property. This is the parts of the property that is commonly accessible by all owners, it does not include the maintenance of individual lots.

It is always important to know what is expected of you and to understand the true nature and extent of your duties. Most disputes that arise between body corporates and resident managers are related to issues about the performance of the caretaking duties and most of these come about from differing expectations about the role of each party under the caretaking agreement.

The body corporate will pay you a fixed remuneration in exchange for your caretaking services, which is usually paid monthly in arrears. Because of your relationship with the body corporate is that of an independent contractor (and not as an employee), you will usually need to add GST to that salary. This means you then have to deal with your own tax and superannuation needs out of that remuneration.

What is letting?

A typical management rights arrangement includes an agreement with the body corporate that authorizes you to conduct a letting business within your community titles scheme. You need to be licensed under the relevant state law to be able to let lots for owners as you are acting as a real estate agent. The type of license you need depends on what real estate functions you want to undertake.

Owners are free to use their property as they see fit. This means that owners are not required to let their units. They may choose to live in the unit or leave it untenanted. They can use the letting services of an outside letting agent. Most prefer to deal with a resident manager because there is a common interest in the betterment of the complex as a whole.

Payment for the letting services comes from each owner who uses those services. You must enter into a separate contract known as a letting appointment with each owner who wants to let their unit through you, which details the basis on which you will act for that owner. There is a standard statutory form for this which should have some additional conditions added to it to cover matters the statutory form does not.

You may earn additional income from tenants or guests by providing additional services. Generally, the scope for additional income streams is greater in holiday or short term buildings. Additional services may include things like cleaning, linen, repairs, and maintenance, equipment hire and sales of tours and theme park tickets.

What are they worth?

Real estate property is usually valued by reference to similar sales in a unit complex, there is almost always other comparable sales to compare your unit purchase price to and recent local sales make for an easy current market valuation.

The management rights business is not that simple. There is no public database of sale prices because each management rights business is different in some respect. What you are paying for in goodwill with a management rights business is the right to earn the income derived from it for the remaining term of the management rights agreements. The value for that right is usually reduced down to a multiplier (i.e. 4 times) the net profit of the business.

As a simple example, a business netting $100,000 on a 4 times multiplier is worth $400,000. Another (and perhaps more traditional way) to look at that calculation is that you get a 25% return on your business investment.

That methodology doesn’t reference the real estate component and some buyers look at the investment return on an overall basis which includes the real estate. If there was a $400,000 unit involved with this mythical business of $400,000, the return on investment would be 12.5% ($100,000 return from a total investment of $800,000)

Purchasing Costs

There are many reports and approvals you will need to pay for when purchasing management right:

1. Accounting verification

2. Legal due diligence

3. Finance approval

4. Body Corporate / Owners’ Corporation consent

The average acquisition costs are about 6% of the purchase price, eg to purchase an $800,000 Management Rights Business you will need to budget for $48,000 acquisition expenses.

The MR Business Model

Many people regard Management Rights as the ultimate “Home-Based Business”, offering lifestyle, excellent return on investment and good resale potential. It is a business where your income is derived from entities which theoretically “cannot go broke” as the Body Corporate Salary is paid by each member of the Body Corporate from their levies and contributions and the Letting income is a percentage of rent collected from the properties you rent for the investment property owners.

Income Streams

There are two major parts to the Management Rights income.

1. Body Corporate Salary

In all multi-unit complexes there are areas such as pathways, gardens, pools, tennis courts, etc which make up Common Property.

The Body Corporate pays the Manager a salary, monthly in arrears, to maintain the Common Property, see that the By-Laws are adhered to and report on any matters pertaining to the complex, you may think of it as a caretaker’s salary.

The Body Corporate also pays for all the day-to-day expenses of looking after the common property. Such things as mower fuel & repairs, pool chemicals & fertilizer are expenses for the Body Corporate, not the Manager. Usually, all the necessary equipment is owned by the Body Corporate and provided for the use of the Onsite Property Manager.

The Body Corporate salary is usually indexed to the CPI, to allow for automatic annual increases.

2. Letting Commission

The Manager has the right to act as an on-site Letting Agent for investor owners wishing to rent their units to tenants. You are paid commission and management fees by the individual unit owners for securing good tenants, accounting for the rent, and ensuring that the rental property is kept in good condition.

Other sources of income for the Manager include repairs and maintenance for landlords, cleaning charges, monthly statement fees. In holiday complexes you can earn a substantial additional income from such additional areas as; room cleans after each guest books out, linen hire, telephone and Internet usage, sporting equipment hire and tour and hire car bookings.