paying attention" . . . .
07) 5594 0016 or 0403 050 255 (Terry), or
0403 382 046 (Mei) Fax 07) 5594 0034
W: www.terrymcmiles.com
This doesn't mean that you have sole exclusivity in regards to leasing as the Owner can lease the Unit himself or ask an outside Agent to manage it. It just means that within the Complex, you are the only person who has letting rights. It makes sense, for a Unit owner to appoint a fellow unit owner in the Complex who lives on site and will have the same interest as the Owner in keeping standards up. Allocating Management Rights for Unit & Townhouse complexes has resulted in a higher standard of care for Unit Owners whether they live onsite themselves or are absentee owners.
ment Rights . . .
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Rights Blog
The other part of the job is the upkeep of the grounds i.e. gardening and lawn mowing.
Under the Caretaking contract you are paid a "salary" by the Body Corporate on behalf of all owners. This will most likely relate to between $800 and $1,200 per year for each unit in the complex. The variance in the amount paid is to do with the level of work involved (Large grounds or small for example) and this salary is usually adjusted by CPI movements on each anniversary of the agreements commencement.
The agreement is renewable, and can be one of two types . . . Standard Module - maximum of 10 years, or,
Accommodation Module - where more than 52% of owners are investors - maximum of 25 years.
Doing the work. In small complexes with permanent tenants the Managers will usually physically do the work themselves and it may relate to the equivalent of a couple of hours work each day.
In large complexes with large acreage grounds and many Units, there may be others employed by the Body Corporate to do the physical work, and here, the Contract will be described as a "supervisory" contract rather than a "do" contract. Here you supervise all of the other contractors (perhaps Pool & Fountain cleaners, Security Company, Lobby, Gym, Lift and lobby/floor cleaners) rather than doing the work yourself.
If you are purchasing a "do" Contract (most common by far) you are not required to physically do the work but if you pay for hired help to do it, you must pay for that out of the fee that the Body Corporate pays you each month. Specialist repairs & maintenance is of course paid for by the Body Corporate.
The Letting Agreement with the Body Corporate that allows you to conduct a letting Agency (and associated property business) is also a renewable contract with the same term as the caretaking agreement. This allows you to enter into letting agreements with all owners who may wish to use your services. To be able to do this you will need to obtain a Resident Letting Agents licence (previously referred to as restricted letting agents licence) and this is available through the Office of Fair Trading on completion of 6 modules of the course that Real Estate Agents are required to take. The course can be done at TAFE offices or by correspondence and is not particularly difficult.
You then enter into an individual agreement described as "Appointment to Act" with each owner who wishes you to manage the letting of his/her Unit.
For permanent lettings (usually 6 months and above) you will be paid 7.5% and for Holiday lettings the rate is normally 12%. These percentages can vary but quoted figures are "the norm".
All monies collected on behalf of owners must be held in a Trust Account and dispersed at the end of each month. By law, your Trust Account is required to be regularly audited.
You can earn extra money by offering additional services. The Body Corporate may pay you to do special repairs & maintenance which is outside of your Contract. Areas could include Painting common areas, upgrading bar-b-que & pool surrounds, Exterior & Interior window cleaning, Replanting Gardens etc. You may obtain quotes and add a small supervisory percentage to the cost or you may do the work yourself and charge a commercial rate for your labour. Tenants may pay you to maintain their rear lawns (permanent complexes), shampoo carpets etc.
Individual owners of both permanent & holiday complexes may ask you to refurbish their Units and attend to general repairs and maintenance.
In Holiday Complexes, as part of normal proceedure you will do vacate or "exit" cleans, supply clean linen & bathroom essentials for each new holiday tenant, you may make extra money from phone calls if a PABX system is in place, you will receive commissions from Theme Park & Tour operators and you may even hire out cots, fold-up beds, boogie boards etc.
As a "rule of thumb" you earn more from holiday complexes than permanent complexes as in addition to the higher % leasing fee you charge owners a margin over and above what your actual cost of (for example) the cleaning & Linen costs you. Whether you do the labour yourself or have someone else contracted to do it depends on the size of your complex and your choice of how much work you are prepared to do. If you contract someone for "exit" cleans you may negotiate a bulk set rate of (say) $27.50 to $30.00 per clean but charge owners a "retail rate" of $48 to $50.
What price will I pay for a Management Rights Business? The Managers Unit will be sold at market value plus a premium of around 5 - 10% to reflect the fact that it is the only Unit within the complex that the business can be run from. The premium can sometimes be more if the office is "on title" with the Managers unit or if just "exclusive use" of the Manager is located adjacent to the Managers Unit with connecting access offering maximum ease of operation. It should be noted here that some agreements call for designated office hours to be kept by the Manager and others do not specify set hours.
The Business Value is often expressed in terms of a multiplication factor of the net profit for the previous 12 months, before tax and excluding any wages for the Managers, interest on borrowings and any payment for labour related work which would normally be performed by a 2 person management team. The multiplication factor can vary from around "4 times" up to around "5.5 times" although sales have been known to be made below "times 4" and above "times 6".
Affecting the multiplication factor will be all of the variables, the likely safety of the Letting Pool, the position, age of complex, occupancy rates, potential for improvement, Managers Unit, health of the Body Corporate sinking fund, length of time left in Body Corp agreement, and amount of physical work that Managers are doing.
In regard to the latter, all small complexes are sold on figures which assume that Managers will be doing the "exit" cleans. In a complex of 12 to 20 in the "letting pool" the daily cleans will average 2 to 3. Depending on the size of the Units time needed for each clean will be from 45 minutes to one & a half hours if done by one person. Bigger complexes assume that cleaners will be employed and there will be a cost for this in the expenses.
The choice in small to medium complexes is yours . . . Do the physical work and earn more, hire labour and earn less. There is no choice in the larger complexes as there is too much office & supervisory work to be looked after.
When you enter into a Contract to buy a Management Rights Business it will usually be subject to Finance, subject to Legal due diligence, and subject to Accounting due diligence. This allows your Solicitor to check that agreements & contracts are in order and your accountant to verify the income figure that you have based your decision to buy on. It is important that you use specialists who are experienced in dealing with Management Rights.
For clarification of any matters in this explanation of Management Rights you are welcome to call Terry on 07) 5594 0016 or 0403 050 255.
NOTE: For other "general knowledge" items of interest please click onto Terry's Management Rights Blog in the toolbar above.
