The price of a management rights business is most commonly the value of the manager’s unit PLUS the value of the actual management rights business.
Manager’s Unit Value (Real Estate)
The market value of the manager’s unit (often referred to as the manager’s lot) is ascertained by comparing similar unit sales within the complex and like or surrounding complexes and then adding a premium for the inclusion of an office or reception space.
TIP: The price of this unit is important as it is considered a ‘non-income producing asset’. If it is too high in proportion to the overall business price it is less favourable from a lender’s perspective.
Management Rights Business Value (Going Concern)
Management Rights are valued and sold using a ‘multiplier’ of annual net income or profit. As an example, a net profit of $100K at a multiple of 3 times would produce a $300k price tag for the business. If the manager’s unit was valued at $450K then the total package price would equate to $750k.
How is a multiplier set? The size of the multiplier is directed heavily by market conditions which includes the influence of banks and associated valuers. Typically the multiple ranges anywhere from 2.5 to 5.5 and can depend on:
- Age and size of property
- Occupancy rates
- Agreement term
- Market demand
- Legislation (existing or pending)
- Income composition (ie. letting vs maintenance)
- Interest rates
With so many variables it is unlikely any two Management Rights transactions will ever be the same. At Green Finance we have extensive experience in procuring finance for Management Rights and are able to provide numerous case studies as a point of reference.
Additionally, it is important to note not all banks and lenders will finance Management Rights businesses so you need to ensure you are approaching the right lender from the get go.
For more information on competitive Management Rights finance or an indication of how much you can borrow for your business call us direct on 07 3899 2866 or fill out your details below and we’ll be in touch shortly.
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