Before I launch into this month's topic, may I say how pleased I was to receive many dozens of requests for the RAAS summary of PAMDA requirements that (fellow director) Geoff Glanville produced, and I wrote about in the last RAAS Report. For those who may have missed it, this was a summary of the things that the Office of Fair Trading inspectors look for if they arrive on your doorstep for a surprise visit. It also included samples of Code of Conduct & Complaint Procedure notices and statutory signs. If you would like to receive this information and forgot to ask, please send an email to mike@raas.com.au with your request and we will send it out to you.

The great response to the last RAAS Report leads me to two conclusions, one of which I will write about in greater detail a little later.

Firstly and very briefly, I am so glad that somebody actually READS the RAAS Report! Your poor old scribe labours long and hard every two months and it would be disappointing indeed to never get feedback or any other sort of response, because nobody reads it. Your dozens of responses have given new life to my pen!

My second conclusion is one that I have been approaching for some years! The current generation of on-site managers is a far better educated lot than those of a decade ago. No, I am not talking about how many have university degrees or an MBA from Harvard Business School; I am talking about their general level of knowledge about our industry, and their willingness to continue that education after they buy their first complex.

It is a credit to the professionals in the management rights industry --- and by this I mean the big agents like RAAS RIGHTS, the financiers, the lawyers, the finance brokers and the accountants --- that this expansion

of knowledge has been achieved. These industry professionals realised that a well informed buyer was a better buyer, and a well informed manager was a better manager! The RAAS Group is a foundation member of a group called RMEG (Resident Managers Education Group) which runs introductory seminars for people seeking solid and factual information about our industry. In recent months, RMEG has conducted these seminars in Brisbane, Adelaide, Wellington and Auckland. Other similar groups to RMEG run seminars from time to time. It has been my observation over the last five to eight years that attendance at seminars like RMEG explains the huge knowledge increase in today's buyers.

For all of us involved in this great industry, the increase in buyer knowledge is a very positive thing. The management rights industry is an industry that has thrived on its reputation as a solid and safe investment, in which --- unlike some small businesses --- you are most unlikely to be misled or defrauded. But like all businesses, our business is one where new participants must enter with their eyes open. There are people in every walk of life (particularly where selling something is concerned) who are quite happy to tell a sucker whatever the sucker wants to hear!

Sadly I have heard people say, "Yes, you can buy this townhouse complex with an income of $250,000 a year and you will only have to work six hours a week in summer cutting the lawns and only three hours a week in winter. The rest of the time you play golf". My readers who are already in the business know how silly this is; my readers who have attended an RMEG seminar know how silly this is; only uninformed folk with stars in their eyes don't know how silly this is!

Anyone who really thinks an on-site manager can earn $250,000 a year for an average of 4.5 hours work a week should get off the bus at the next stop because they are heading in the wrong direction!

Buyers who stumble blindly into our industry based on this sort of misinformation will become our worst enemies. Some of you have heard me speak before about Joe Girard's Law of 250. Joe's research (Joe was the greatest car salesman who ever lived) shows that each of us knows approximately 250 people well enough that they would come to our wedding and/or our funeral. These are also the 250 people the buyer would "bad-mouth" the management rights industry to when he find out that the mowing & hedging actually takes 10 hours a week and the total workload including rental management, property inspections etc takes 36 hours a week --- and he can only play golf once a week. Still not bad for $250,000 a year, but the inflated initial expectations have not been met, so 250 people get to be told what a "rip-off" management rights is.

Thankfully it doesn't happen much anymore because buyers are better informed. If you are a reader who already owns a complex, please don't think you know it all --- join RAAS and keep learning. If you are a prospective newcomer to the industry and you have been told the story about the $250,000 income for 4.5 hours work, send me an email at mike@raas.com.au and I will put you in touch with a realist!

P.S. If you would like to increase your knowledge of what you need to do when the time has come to sell your management rights, see the notice at the end of this RAAS Report about a free Vendors' Information Seminar being held at Fitzy's at Loganholme on 9th September.

by John Mahoney, Managing Partner, Mahoney Lawyers
john.mahoney@mahoneylawyers.com.au

"It's the economy, stupid." Former US President Bill Clinton is often credited with these words (along with many other things that are probably best left alone for the purposes of this article) and I am reminded of them as I ponder what happened to the good old days in management rights when deals were oh so much easier.

Actually it was not Bill Clinton that made the statement, but rather one of the then presidential advisors, James Carville. Well James, those of us in the management rights industry who are finding the going a bit tougher than what it was only a couple of years ago, can gain a lot of solace from your words.

From my perspective, the world of management rights as we had come to know it began to change in early 2008 when the last 2 interest rate rises took effect. Not surprisingly, the rate rises had their desired effect of cooling the economy and discouraging spending and borrowing. We saw an almost immediate downturn in the number of management rights transactions - albeit from what had been record (and probably always unsustainable) highs. Although rates came down again as the GFC took hold, the general uncertainty in the economy kept a lid on sales.

Whist the Australian economy proved fairly resilient in the face of financial disasters all around the world, there remained a distinct lack of confidence

in the economy that impacted on our industry in a number of ways. Firstly many potential buyers withdrew, held back or became incredibly fussy about what they would buy. Secondly, in the case of holiday and corporate lettings there was a fairly significant downturn in the demand so occupancy levels in many complexes fell.

As a result, the market has been patchy for the past 2 years with bursts of activity followed by periods of minimal activity. The market is moving with the economy – in an uncertain and tentative way. So if we want to try and predict where the market may go, we have to be able to predict what the economy is going to do.

Just as surely as the boom in the management rights industry had to come to an end, so too will it recover – in tune with the inevitable economic recovery, whether that be 1, 2 or more years away.

Whilst things are tough in the industry at the moment, it is not all gloom and doom. Most businesses have been able to maintain their income levels, with the exception being some of those heavily reliant on the tourism industry in areas where tourism levels are down. Even so, many managers in these areas who have a creative marketing flair utilising the internet extensively have been able to maintain or even build on occupancy and income levels.

There are some substantial deals being done.

We are about to settle the sale of a large management rights business that is reputed to be at the highest price ever paid in Australia but as is the case with most transactions in these times, it has been a difficult deal to get over the line. We started the negotiations some 9 months ago!

The reality is that good businesses will sell, but the buyers are better educated (some would say to their detriment), more fussy and more inclined to reject a deal than accept any perceived risk than ever before. For buyers there appear to be some good opportunities out there.

Potential sellers need to be realistic about the likely sale value of their businesses and make sure that everything about the business is in order. The claimed profit must stack up (and be demonstrably and genuinely sustainable), letting appointments must all be in place and assignable, management and letting agreements must be of good, long tenure and the relationship with the Body Corporate must be sound.

Things are not going to change until we see a significant improvement in the economy, something which is inevitable albeit the timing of which is unpredictable. That's just the way the economic cycles go. After all, it's the economy stupid.

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