4 ways to profit from a management rights business
Purchasing a management rights business can be a great way to make money in the property industry. Here’s how it’s done, and the four different ways you can profit from it.
About management rights
A management rights business gives you the opportunity to provide caretaking services in the common areas of a strata scheme or holiday apartment complex. You may also have the responsibility for providing letting services for investor-owned lots in the complex.
These rights almost always come with the purchase of an apartment in the complex. In most cases with holiday accommodation, you may also have the right to use an office or reception area in the building.
A management rights business is highly flexible, giving you the opportunity to make money while having more free time. You will also get to meet plenty of new people, so it’s a highly sociable and enjoyable career.
There are two types of management rights business:
1. Management rights for permanent residences
A permanent residence is a building where people have their permanent homes, such as a strata scheme. To own a management rights business in a permanent residence, you purchase an apartment in the complex as well as purchasing the management rights contract. You then take on the responsibility for caretaking in all the common areas of the property.
For this type of management rights business, it helps to have a good working relationship with the strata manager.
2. Management rights for holiday accommodation
A holiday accommodation management rights business, such as this example property that we sold in Palm Cove comes with a manager’s apartment, and possibly an office or reception area in the building.
This type of business is based on the number of apartments which are in the “letting pool”. It’s possible that not all of the apartments in the building will be rented out as short-term or long-term stays.
Some holiday apartment buildings may also include a tourism desk where visitors can book tours. If the property does not currently have one, you can start one if you take over the management rights.
Management rights: profit opportunities
There are five major ways to profit from a management rights business:
- Caretaking services such as this example property in Palm Beach
- Letting services
- Ancillary services, such as earning commission on tours booked by holiday guests
- Profit earned on maintenance for unit owners
- Apartment value
Before you can make a profit on a management rights business, it does involve a considerable initial outlay. You can expect to invest $1.5 million or more, with some management rights business opportunities costing up to $5 million or even $7 million.
While this may seem more expensive than many other business opportunities, with management rights you are not just buying a business. You are also purchasing an apartment, which is an appreciating asset.
The real cost of a management rights business is generally calculated as a multiple of its income-generation potential. For example, if you purchase a management rights business, including an apartment, for $1,500 million, and the apartment is valued at $500,000, the multiple would be five. From this, you could expect an income of $200,000 each year.
The true value is in the management rights contract
When you purchase a management rights contract, you will be expected to sign a long-term contract with the body corporate who manages the strata apartment or holiday let property. These contracts can be as long as 25 years.
However, this doesn’t mean you will be expected to stay in the building for that length of time. If you decide to move on, the management rights can be assigned from you to another operator.
The long-term contract gives the property manager the peace of mind of knowing they have a dedicated caretaking service on-site at all times to handle any issues that arise. It also gives you an asset which will increase in value. Banks recognise this as a good investment so you will be able to borrow against it more easily than you would with many other types of business.
Of course, the management rights contract needs to be favourable. You should only sign a contract that has been reviewed by a purchaser’s lawyer to make sure you are purchasing an attractive business which will continue to generate a healthy income for you into the future.
If you would like to know more about management rights businesses, please contact us and we will be happy to help.