Purchasing a management rights complex is as exciting as it is challenging for those who wish to become part of this industry.
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After more than 15 years specialising in providing finance to the management rights industry, it’s clear that some prospective purchasers are better prepared than others. So I’ve provided some tips below to help you make a more informed decision, after all this could be one of the biggest decisions you make!
- Use professionals with industry experience, this means your financier, the accountant for the verification report and your solicitor. A good way to define industry experience is that dealings with the management rights industry are a core activity for the professional you intend to use. The completion of one or two transactions is not enough and we’ve seen some costly mistakes made.
- While your specialist agent (one that only deals with buying and selling management rights) is an invaluable source of information, you’ll still need to undertake you own research, such as talking to existing management rights operators – you will find they’re usually more than willing to discuss their industry.
- Attend seminars about the management rights industry. Apart from the knowledge you will gain, they also increase your network of people who are going into this industry and they’ll be going through the same issues that you’re experiencing.
- Ascertain your purchasing capacity before you start looking at complexes, this will save you a lot of time and money. Your specialist financier will be able to assist to work out this affordability.
- Your financier will also be able to help with getting your finances in order so you can be ready to purchase. If you’re thinking about retaining a property to use as equity you need to be realistic as to the value of that property and a current valuation will help your financier. Alternatively, if your equity is cash, your financier will ask how much is available for equity as you’ll need something to live on between now and up to your first income payment from the new business.
- Your financiers will need the details of the location of the complex, what type of complex it is and whether or not it is new or existing, as they may have certain exclusions. This will often apply to financiers who don’t specialise in the management rights industry and if there are any exclusions, you need to know early on before you have wasted your time.
- Ask your financier to provide you with a likely borrowing scenario(s), as no two complexes are the same and these scenarios will help you make an informed decision.
- If you have a business partner, discuss your roles prior to settlement as you need to both have clear expectations so the partnership can run smoothly.
- Advise your agent of any special needs such as pets. If you have a pet and are looking at a complex that doesn’t allow pets and, if there’s resistance to having that by-law changed, reconsider if that’s the complex you should be spending your energy on!
- Ask the agent if the net operating profit of a particular complex is the vendor’s best guess or if they have had their figures verified by an industry specialist accountant. The more accurate the vendor’s figures, the less chance there is of disappointment if there’s a variance.
- Work out what type of complex will suit you. Different styles of complexes suit different people and holiday complexes have different features and benefits to permanent complexes. Ask yourself what your specific needs are and write down the pros and cons for each style and discuss these with your specialist agent. Another way to assess the proposed business is to look at the pros and cons as if you were selling the complex and not buying, doing this will give you a different perspective.
- Compromise. The perfect complex that ticks all the boxes probably doesn’t exist! You may be more focused on the income being generated rather than the size of the manager’s unit or the size of the manager’s unit may be your priority to accommodate a larger family. Compromise is a part of the purchase process and deciding what complex best suits you and your particular circumstances.
- Keep notes. No one should be concerned that you are keeping records of what is being said.
- When your loans are approved make sure that you read the entire financier’s conditions; there may be some onerous reporting requirements that can unnecessarily take a lot of your time and cost you money to comply. Ask your financier upfront with regards to what reporting requirements they will condition into the loan.
- Join the industry body ARAMA
- Don’t be afraid to ask questions.
The material and information in this article contains general advice. This material and information has been prepared without taking account of your objectives, financial situation or needs. You should consider the appropriateness of any general advice before acting on it and obtain your own specific legal advice.
Tim O’Donnell has over 35 years experience in the financial industry with the last 15 years specialising in lending to the management rights industry and being an active participant within the industry.
Tim and Jocelyn Codd are owner-managers of BOQ Burleigh Heads and their customers often refer to the branch as being “management rights friendly”.
At BOQ Burleigh Heads we acknowledge that no two complexes are the same and each one needs to be individually assessed, together with taking into account the client’s individual financial position and future requirements.