Saturday, December 16, 2017
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Structuring your MR partnership

Are you are looking for a management & letting right business to own and operate?

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If you are looking for a management and letting rights business, whether it’s your first purchase or you have owned one before, you may consider buying a business under a partnership structure. There are advantages with buying as a partnership, with one being the benefit of being able to purchase a larger business. By relying on additional capital from silent investors, you can potentially increase your return and capital growth opportunities.

Example: A couple with $250,000 to invest.

Option 1

You can purchase a management and letting rights business for up to $700,000. Assuming the residence is worth $350,000, the income will be around $85,000 pa (before interest). After interest payments, your income will be $55,000 pa. One benefit of this business is minimal working duties, but you will have to do everything (no staff) and it’s fair to say you are really buying yourself an income and limiting the capital growth opportunities.

Option 2

With your $250,000 you could invest as a working manager under a partnership structure and potentially receive $45,000 from profit distribution (after interest payments), in addition to a Management fee of $80,000. Your income will be $125,000 pa. This business will come with more work but you will also have the support of staff and advice from the partners, if needed – in addition to more income and opportunities for growth.

Are you looking for a management and letting rights business but don’t want to operate it?

Example: You have $1,000,000 to invest, you see management rights as a good investment but you do not want to operate the business.

Option 1

Purchase a management rights for say $2,800,000. Net income of $375,000, less cost to employ a manager $80,000 plus use of the apartment. After interest your return is approx. $175,000 which is excellent at 17%. The downside is you have a business that is operated under management. If you have good managers, that’s great but there’s always a risk they will resign & when they do move on, you have to settle in new managers. Another down side is all your eggs will be in one basket, if that business suffers for any reason, your capital investment will decline.

Not to mention the managers have no financial interest in the business therefore less likely to take responsibility or motivated to succeed.

Option 2

Invest $1,000,000 over two or three management & letting rights under a partnership structure.

Your return should still be approx. 17% but you will be investing in separate businesses. The manager in these business’s will have a financial interest therefore should be more motivated than employee’s and allows you to be a ‘silent’ partner. There will also be other silent partners that have management & letting rights experience which provides a good support network for management, body corporate issues, licensing, marketing and general day-to-day business duties.

How is a partnership structured?

The agent company owns the asset, borrows the money, holds the corporate license and runs the business all on behalf of the partnership.

Unit trusts can also be setup to enable self-managed super funds to invest (subject to meeting legislative requirements).

Only the managing partner needs to hold a licence in these arrangements. Although the agent company is the borrower, each partner will need to sign a guarantee but that guarantee is limited to their share of the debt.

Partners are generally company /family trust entities and capital gains can be rolled in and out.

Ideal manager – Someone with a high work ethic, is able to manage staff effectively, willing to share rewards with partners, is easy going and understands how to succeed in business.

Ideal silent partner – A person that will take a business risk, to achieve high returns, has worked in or around the management and letting rights industry and understands it, is willing to let the managing partner get on with things but is also happy to have input when required. They can invest self-managed super funds, with a minimum investment to be $100,000.

Existing managers who have built up equity in their own building can grow their investment, by accessing into this equity and buying a share in another business in the future.

What makes a good business for a partnership?

There are many factors taken into consideration:

  • Location
  • High net maintainable income (at least $400k)
  • Possible growth in income
  • Accommodation module
  • Key real estate on title
  • Low percentage of real estate as compared to total price
  • Body corporate history
  • Competition
  • Majority investor owners

If a business is’ broken’, is the price right and can it be fixed.

Are they fool proof?

This company has been helping people into partnerships for over 15 years. We came up with the structure which is now accepted and promoted by various banks, lawyers and accountants. You would expect we have come across every possible scenario that can happen. But there is always a new challenge and opportunity around the corner…that’s business. Nothing is fool proof and there are no guarantees with any investment. However the support of a management rights broker specialising in facilitating partnerships can help you achieve your goal as a working manager or silent investor.

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Disclaimer: The above information is not to be taken as advice and each investment can vary depending on individual circumstances.

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