What is a Manged Complex
Buying and owning a property in a managed complex is more popular than ever before. The words Body Corporate or Onsite Management once sent chills up the spines of many people, including investors. However, by choice or by necessity, managed complexes are now a more common property option and are growing in popularity each year.
When we talk about a managed complex it can mean anything from a duplex with a simple body corporate arrangement, right up to a multi unit complex with onsite live-in managers. The complexes with live-in onsite managers might be holiday complexes, student accommodation or normal residential attached (semi-detached) dwellings or units.
Even a detached house and land can have a management arrangement for a gated style community and now with the rise of fractional ownership in property, there is vacant land for a predetermined use (like camping etc) that has management agreements across the overall site.
Management of property complexes is on the rise and it is big business. A holiday or onsite management business can sell for a multiplier of many times their annual incomes, and this could be a substantial amount of money. Their price is dependent on how many units / sites are in the management pool, the fees charged and the gross rental fees. The flip side is, that they are classed as a reliable income source (due to their recurring income nature) and from a financing perspective, the right bank likes to lend against them for that reason.
I am telling you this to give you some background into the goings on in management complexes.
A Buying Story…
Recently we were asked by a first home buyer to source a townhouse in an outer suburb of Brisbane. One of the short-listed options we found looked nice, as it was fairly new (one of the criteria from our client) and in a decent location in the suburb with a great position in the complex. So, we called to organise an inspection.
Immediately red flags started to be raised. The developer was listed online as selling the townhouse but referred us to the onsite managing agent for more information and to be the point of contact. This might be great for access into the property, but it means they also have a large grip on the complex.
Our client still wanted to take a look. We arrived on site and then, it all started to fall apart.
The onsite manager asked if our client was an investor, we said no. They told us very proudly that they have a 100% ownership by investors in the complex and they will be keeping it that way. They simply will not sell to an owner occupier.
We told them that a 100% investor ownership ratio was not only well past our threshold of 40% (the average market is made up of 40% investors and 60% owners so we use that figure as a worst case mix for investment, that is another topic..) it was simply stupid and we would not recommend our clients buy in there anyway.
The inspection ended without an inspection.
Why did the onsite manager act in this way?
Money…
You see, onsite management rights are very costly to purchase and in brand new complexes, not only is each property (ie. Unit, Townhouse) up for sale BUT also the business of owning the rights to manage the complex are up for sale.
If the developer sells each site in a 100-site townhouse development to an onsite manager, they will earn about $4500 per unit. A cool $450,000 for the developer and a steady stream of income for the onsite manager.
If the average rent in the complex is $500 per week and the onsite manager charges (whatever they want really) say 8%, that equals $40 per week per unit of management income. Multiple that by 100 units and you have a nice, regular income stream of $4000 per week. And you don’t even need to leave your complex to earn it! This does not include re-let fees and lease fees etc which can add up to many tens of thousands on top of the regular income.
However, when a developer sells to owner occupiers, those percentage owned by investors change and therefore the valuation of the management roll changes. A 30% drop in the investor ownership will result in a corresponding drop in the income for the onsite manager, and a 30% drop in the value of the management asset.
You can see from that example that there are real vested interests in managed complexes with onsite management.
Control is the key with real estate and if you can’t control the income via ownership, control the income via management.
It should be clarified here, that this is relating to the onsite management, not the body corporate management. This is another set of fees and charges altogether and are generally paid by the owner of the dwelling not the tenant.
There are plenty of nicely run complexes too so don’t get the wrong idea. Good management has its place and can make for a great managed asset.
Simply understand that you want to be in the right complex with the right management. For most people an independent body corporate will do just fine with each owner managing their own tenants individually, though local rental agents.
A normal body corporate arrangement (with no onsite manager) will most likely mean a higher owner-occupied percentage of owners too. This can be found out via a door knock; you can get a decent idea from ownership searches or from body corporate meeting minutes too.
A body corporate records check should be on your list of things to do prior to purchasing. Your solicitor can organise this.
Our next article on managed complexes is for owners. Click here to continue the series now.
For more information on this article or anything property related, contact us via 1300 66 77 89 or via email here.
Since 2004 Scott Northcott has been helping people buy the best properties for their needs at prices that simply speak for themselves.
Scott has been instrumental in bridging the gap between financial planning and traditional real estate transactions through his property advice model. By carefully considering his clients’ goals and planning for market changes via demographics and trends, Scott designs a future proof outcome not only specific to the client’s needs but dynamic in its execution with performance indicators and exit strategies built in.