What is Management Rights?
Management rights is the term used for managing strata title properties.
There are several types of strata title property that is run under the system but in the main we are talking about the management of residential units.
How did this concept come about?
Some 50 years ago, at the Gold Coast in South East Queensland a group of farmers purchase a block of holiday flats for their own use.
After some years one of the farmers retired and shifted in to his 2 bedroom holiday unit at Broadbeach. He often got people knocking on the door asking if they could rent one of the units and after noticing a strong demand for this type of accommodation he arranged with the other owners to let their units for a commission, organized the cleaning, looked after the common area of the complex and hence the birth of management rights.
Today in Queensland alone there are approximately 2000 management rights complexes of indifferent styles, holiday letting, permanent letting, short term commercial letting (similar to a motel or international hotel) and some complexes have a combination of all three in the one building.
How do they work?
To achieve ease of operation and to obtain fair results for all unit owners, Management Rights has evolved to what is today and through necessity the correct legislation under the umbrella of the Building Units and Group Titles At. 1980 – 1992.
In 1997the legislation was changed and updated getting ready for the new century and is now called the Body Corporate and Community Management Act.
Every management rights has a body corporate and has a body corporate committee elected from and by all the owners to conduct the smooth running of the building generally together with the care of all common areas.
The introduction of management rights has a way of managing strata title units has been a boom to the accommodation business as the person you deal with behind the counter is generally the owner of the business and they earn their income by essentially receiving a body corporate salary (part of the annual levies that the unit owners pay to own their unit), the manager collects commission when letting units on behalf of absentee owners and in the case of holiday let units they arrange the cleaning after guests have left, supply of linen and toiletries from which they make a margin to add to their income.
Who buys Management Rights?
A wide and varying selection of people have entered this industry, some finding it very much to their liking and often sell after 2 or 3 years to buy a bigger complex where others find this type of business not suitable to them and when they sell they find another business or other employment, however there is a 60% retention in the industry, in other words, 60% of all buyers sell and buy again.
What am I buying?
Management Rights are sold in 2 components.
- The Managers unit.
- The Management, Caretaking and Letting Agreements.
The two main functions of the resident unit manager are caretaking/management in other words running the business and looking after the common property and you also work as a property letting manager, letting out units on behalf of investors.
Can you borrow money to buy management rights?
Yes, as Management Rights have been one of the most outstanding business models in Australia today as very very few have got into financial difficulty will often not lend you anymore money on the business and the unit than can be serviced from your body corporate salary. Generally you can borrow up to 65% of the business price and the unit.
How is the sale price calculated?
Management Rights are sold on a factor of nett profit, in other words, for every $100,000 worth of income you will pay between 3 to 5 times. On top of this you will pay market value for the managers unit in accordance with sales achieved for similar units in the complex.