There have been many of articles written on the Management Rights business model in Queensland over the years. Multipliers in Management Rights are one of the key areas that people are keen to find out more about.
Like most business operations the model is the same however the individual businesses can vary considerably. Management Rights are no different. A real estate agency or a McDonalds franchise, they are all individual businesses but have an overlying business model structure in place.
The management rights business model has some real strengths when we compare to various other models. If we look at some of these strengths:
- The BC salary, or often known as the remuneration, is a set salary each month over a given and agreed term. This is also subject to annual CPI increases, sometimes higher. There is a contract in place for this salary which can range from 10-25 years. As we are all aware many jobs today can be terminated with 1-4 weeks notice. With management rights it can only be terminated under a legislated process & this rarely happens. This certainly offers strength to the model & security in your role.
- ROI or return on investment can be very good in some cases. Some buyers actually buy to gain the benefit of higher returns compared to interest rates offered by lenders, or in somewhat volatile share markets.
- No debtors. Tenants whether long or short term (holiday makers) pay up front and this is held in a trust account. As a manager you get paid regularly each month in addition to the monthly BC salary. The trust account is audited and carries regulatory requirements. This in turn offers certainty to the industry. Each month you pay the lot owners then yourself, simple & straight forward.
- Many management rights businesses are capable of being staffed by a 2 person team, generally being a couple with contracted cleaners or other service people to assist. Training & retaining staff in any business can be very time consuming and frustrating for business owners.
- Generally, managers work the hours needed which offer flexibility. Time can be taken off at your discretion, within reason. The business can be managed by you, and only you. Yes there are stakeholders and like any business relationships and trust are an integral part to the success of the business.
- People will always need somewhere to live. Holiday makers will always need to have a holiday. With the Sunshine & Gold Coasts being two of the best destinations around.
- Regular income, although the holiday market can go up and down across a 12 month period occupancy rates are reasonably consistent across the board & this has been the case over a number of years.
- You may be restricted to a building but not a territory. Some MR owners own more than one operation. Also there can be options to earn additional income by completing sales in your complex. In some complexes this is a business in itself. Depending on what type of licence you acquire you may also let additional lots outside the complex. The opportunities can be far & wide & need to be considered fully.
- You are buying real estate or a managers residence also. Bricks & mortar that you own. You live where you work so travel costs are reduced also.
Quite often I am asked, why are multipliers higher than one would see in other business models? The above points must be taken on board. The more certainty or legislated a business, perhaps safer for want of a better word is, then the more value it may hold. There are many more benefits to the MR model that may not be found in other business operations.
So the multiplier is simply the accountant verified net income multiplied by a factor of anywhere between 2 – 6. Various factors affect the individual operations but this multiplying factor is recognised by lenders and other professionals in the Industry. Existing managers purchased on a multiplying factor & will sell on one.
Everyday we see or hear of small business failing across a number of areas. Rarely however, do we see this in management rights operations. The business model has strength and this is also recognised by lenders and covered to a degree in legislation. Multipliers may seem high and at times unwarranted, however once buyers get in & become more familiar with their operation and the industry, many then learn why they have paid what they did. Simply security & simplicity of income, a place to live & a consistent, at times thriving, & certainly a growing industry.
Many buyers now considering management rights as a future are looking to the model for various reasons including job security, having control of their own destiny, lack of, or decline of jobs and income to go with it, style of living and life. However, essentially it is about owning your own business & taking control of your destiny.
There is risk in any business and many would be buyers remain hesitant, sometimes this can simply be a fear of not succeeding. For some it is leaving the security of a job, or structure in life. Life is an unknown & unless we pioneer and give things a go we will never know. What we do know is that success & goals cannot be achieved by remaining still.
If you have no done so already have a browse through our previous articles & for any further information please contact us first. Lindsay Petty Management Rights
Hi Lindsey,
I’m an onsite caretaker, and everything here is absolutely correct. The only thing that worries my husband and I are the dropping values of units given the massive amounts of new developments and unit stock hitting the market. A lot of my investor owners are getting cold feet and want out of their investment, and because prices are lower than usual, they are not being replaced by investors but owner occupiers. This represents a real threat to the viability of our business, as we bought in with a certain number in the letting pool and we are seeing a slow decline in that number. Is anyone else out there feeling this too? The recent election and low interest rates are not helping to induce investors into the unit market but is certainly helping them to move out of it. If anyone else is in the same boat, would like to hear. I should add that I send out newsletters to my investors a few times a year, and my message is always to hang in there and that prices will return once the new stock is sold off and the population grows to take up the new spaces. Comments?
Cheers
Tracey
Hi Tracey, thanks for your comment & you are absolutely correct in what you have said.
I am not sure where you are located, guessing Brisbane. I am on the Sunshine Coast and have spoken to some managers about this exact thing so you are not alone. The reality is
investing in real estate should be a long term plan, however many investors get nervous and sell when the best option is to hold. The media certainly does not help the cause. I think newsletters encouraging owners to hold on is great. The relationship that managers should create with all their owners is something that unfortunately, many take for granted.
As you may be aware owners in complexes can be targeted by external real estate agents suggesting they have buyers & therefore creating a transaction that may never have happened otherwise. As the onsite manager there can be opportunity to become involved in sales in the complex and this is something that I recommend all managers should consider doing.This way, you as a manager may be able to control sales transactions in your complex.
There is talk that the cash rate will be reduced more over coming months, whether this will induce consumers to spend more, I am not sure, however If interest rates rise again when many have borrowed at very low rates we will see another dynamic that will change the marketplace, & that we will have to adapt to.
I had a meeting with a finance broker yesterday who has been involved in the MR market for some considerable time and he has seen many ups & downs, all economy driven. Our conversation was more around management rights pricing and what lenders are doing in this regard however it reiterated the strength of the business model.
Not sure if I have helped. You highlight a risk that our business model has & one we really have little control over, however one that has been around for some time. I am passionate about the industry and continually look for ways to assist managers in their business & promote and educate on the business model.
Regards
Lindsay
Definitely get involved in the sales process! I always tell managers this. There is no one better qualified to sell investor stock than the manager. They know the returns and the complex inside and out. As an investor myself, I’ve found it incredibly hard to get investor data from normal realtors. My experience is that they simply give me the number of the onsite manager and tell me to call them for all the management information. The poor manager is left handling the sale and not making a dime out of it except the vague promise of a management agreement some time down the road if the sale goes through. Get into the sales process – we give you all the tools you need to be a really effective sales person, marketing services, sales history databases, contracts, CMAs, etc. We’re also about to launch the new version of TheOnsiteManager.com.au which includes fields for all investor centric information (gross returns, net returns, yields, rates, BC costs, cleaning, management, etc) so investors can search for investment property at a glance. To my knowledge, we’ll be the only portal in Australia to offer all of this information. Watch this space – but for the mean time, get your licence upgraded and get into the sales process 🙂