Question 1

What are management rights?

Accepted Answer

Management Rights is a service business that typically comprises of two major sets of duties within the building or townhouse complex it operates: 1) Caretaking of the common area and facilities, and 2) Letting of the units in its own letting pool. In many buildings/complexes, you are required to purchase a residential unit and live onsite to carry out the duties, although it is not always the case. The business is based on a service contract of up to 10 or 25 years, depending on the module of the building or complex, and the two main streams of income provide a great level of certainty and stability, which is why it is a perfect pathway for people to get into a business without the high risks that are usually associated with starting a new business. Management Rights is a service business that typically comprises of two major sets of duties within the building or townhouse complex it operates: 1) Caretaking of the common area and facilities, and 2) Letting of the units in its own letting pool. In many buildings/complexes, you are required to purchase a residential unit and live onsite to carry out the duties, although it is not always the case. The business is based on a service contract of up to 10 or 25 years, depending on the module of the building or complex, and the two main streams of income provide a great level of certainty and stability, which is why it is a perfect pathway for people to get into a business without the high risks that are usually associated with starting a new business.

Question 2

What are the types of management rights?

Accepted Answer

Typically, you will encounter management rights businesses in the following categories 1) Long-term or Permanent letting - generally for lease terms of 6 months or more. 2) Short-term or Holiday letting - serviced-apartment types of letting arrangement. 3) Student accommodations - mostly located next to schools or universities and mainly for students. 4) Corporate letting - generally short term letting for business travelers. 5) Retirement villages - generally long term letting for retirees. Whilst all of them are attractive options, the first two are potentially the most common ones. Additionally, these types are not mutually exclusive, and many businesses comprise a combination of different types. Another term you may hear is Off-The-Plan, which refers to the building or complex that is yet to be built, and the underlying building/complex can be any of the above types. As the procedures and routines are generally yet to be set up in these new buildings/complexes, a certain level of related experience is preferred for operators to succeed.

Question 3

Are management rights profitable?

Accepted Answer

Let’s be honest, for our Mum-and-Dad operators who look for the lifestyle of the business, Management Rights business is not going to make you a humongous amount of money, yet it is still extremely profitable when compared to other types of businesses, especially if you are considering jumping into a brand new industry. More importantly, Management Rights business provides stable and steady income that are sustainable, and it is this stability that is extremely appealing to the operators. With the everchanging marketplace and economic uncertainties, the Management Rights business has becoming increasingly attractive.

Question 4

How much can I borrow for management rights?

Accepted Answer

For any business finance applications, the lenders usually consider the 5Cs (Capacity, Collateral, Capital, Character and Conditions) to make a lending decision. Assuming everything is satisfactory to the lenders, a successful borrower generally can borrow up to 70% of the overall business value. It sounds cliché to say every transaction is different, yet it is absolutely true when it comes to borrowing for management rights purchases and/or refinances, as two different borrowers buying the same management rights business can get very different results even from the same lender. This is why you need to speak to a finance broker that specializes in the industry to support you with  accurate and timely information, so you can get on with your new business venture as smoothly as possible.

Question 5

What happens when management rights expire?

Accepted Answer

Unfortunately we have heard many unfortunate stories like this, yet if you surround yourself with a team of industry professionals, it should never happen. To put it simply: if the agreements expire, you no longer have a business. However, it is so easy to stop that from happening. All you need to do is to read your service contracts, proactively seek to “top up” the agreements (i.e. to add further terms to the service contracts), and exercise the options to activate those terms when the time comes. As a general rule, for a typical 25-Year service contract, the remaining contract term should not fall below 20 years to ensure you retain the value of the business and keep your options open.

Question 6

How do you buy rights as a manager?

Accepted Answer

Similar to buying any business, or in fact anything, you should always speak to a sales broker that knows the industry and the business you are buying, who can also hold your hand through the process. Also, assembling a team of professionals is critically important, as they can give you all the industry insights, help you complete the due diligence, walk you through the process, and provide thorough training to set you up and make the business a success.

Question 7

How do management rights make money?

Accepted Answer

For a typical Management Rights business, there are two main components of duties, i.e. Caretaking and Letting, and in return, earn income from carrying out these duties. For Caretaking duties, the business operator takes care of the daily maintenance of the building or complex, monitor the condition of the common area facilities, facilitate specialty repairs, and assist residents with their enquiries. For performing these duties, you earn a caretaking income from the body corporate of the building/complex, which is specified in the Caretaking Agreement. In regard to letting duties, the business operators operate similarly to a property manager, and earn their commissions and fees for letting out the owners’ properties and provide services requested by the owners. Typically, the letting income is based on the individual letting agreement you have with each owner.

MANAGEMENT LETTING
RIGHTS