Tips for New South Wales Management Rights
11 steps in the buying process.
The management rights business is unique and if you are contemplating entering into the business it would be beneficial to educate yourself on the process and issues that may arise.
- Only work with specialists professionals in all aspects of the management rights purchasing process
- Always ask the professional adviser, do they work in the management rights industry on a daily basis.
- Attend a management rights seminar and thoroughly read all the handout information. You need the personality and skills required to engage and work with:
- Members of the body corporate
- Unit owners (your clients)
- Tenant/guests.
People management skills are required to succeed in this industry and the seminars will help you decide if the industry is for you. Go to www.managementrightsaustralia.net for management rights seminars.
3. Evaluate your level of purchasing capacity with the help of a specialist management rights financier
Once you have decided that you want to be involved in the management rights business obtain a realistic market value for your assets, so you can be guided towards a management rights business that is within your price range and attempt to gain preapproval borrowing.
4. Seek experienced professional accounting advice
It is important to meet with your accountant prior to you signing any offer or acceptance form. Our experience has shown that meeting early with your accountant can ultimately save time and money.
Your specialist accounting professional can advise you on the following aspects of the industry:
- Your affordability
- Cash flow requirements
- Structuring advise
- Accounting and taxation advice
- Trust account and accounting software requirements
5. Meet with experienced management rights brokers
The broker will evaluate your affordability and suitability for the industry in holiday, corporate or permanent letting style businesses.
Once you have visited a number of sites and reduced your options, revisit the buildings to decide how suitable the running of the building is for you personally and for your lifestyle expectations.
Review the buildings for any disadvantages such as extensive maintenance requirements, building defects, the serviceability of the manager’s office and manager’s unit.
6. Selecting your management rights business
Once you have completed sufficient due diligence, discuss the proposed offer with your specialist accountant and if still satisfied go to offer and acceptance.
7. Select an experienced management rights lawyer for legal due diligence
A specialised lawyer is essential in relation to the purchase, to review all of your legal contracts, management agreements and past body corporate history. This is important to make sure you have a viable relationship with the body corporate committee and that there is a workable management agreement in place.
8. Verification
Engage your specialist accountant to carry out an independent verification report within the days specified from the date of contract. This report is the cornerstone of the viability of your future business, so ensure you engage an accountant that is independent.
The verification report will be for the benefit and use of yourself, the purchaser, and copies will be forwarded to your lawyer, valuer, banker, and any other parties as instructed by you.
Your financier will not provide funding without a verification or due diligence of the business. This process will involve:
- The vendor completing a checklist of property and financial attributes.
- A site visit by the accountant.
- Accountant will discuss the business with the vendor.
- Review management agreements in place with unit owners.
- Review of the income and expenses for the most recent 12 month period (stated in the sale contract).
- Employee costs would be assessed on the basis of a two person owner operator.
- Once the accountant has obtained all relevant information and verified the income and expenses, a verification report will be issued to the purchaser stating an achievable net income figure and any relevant deficiencies.
Should the profit verified by the accountant be less than the profit figure included in the sale contract, there may be scope for negotiation on the sale price.
Don’t undervalue the importance of this part of the process because a substandard verification could result in you purchasing a business that does not satisfy your financial expectations.
9. Finance conditions
Once your financier receives the independent verification report, they will decide whether to approve the finance after reviewing the following:
- The verification report
- Your cash flow and serviceability
- Your capability to operate the business from their perspective
- Whether the business finances are within the funding guidelines of the financial institution.
10. Obtain a real estate licence
It is important to enrol with a registered training organisation to obtain your restricted or full real estate licence and register with the Office of Fair Trading.
11. Contract goes unconditional
Once you have the following approvals:
- Profit verification
- Finance
- Legal
The contract will go unconditional subject to the approval of you, the purchaser, by the body corporate committee and this will usually take place in the last two weeks of settlement. The vendor is required to advise the body corporate of the sale and arrange for an interview meeting.
Your specialist lawyer can assist you in the types of questions you will be asked and what information you will be required to supply in the interview. The approval should now be complete and you will await settlement. The material and information in this article contains general advice. In all cases use the most experienced professional accountants, brokers, lawyers and financiers that will take into account your specific needs.
Paul Gaffney, a partner of DFK Crosbie, is a management rights industry specialist and regularly holds management rights seminars.
To download the full tips in PDF, please click here.
