Management Rights Valuations

To value the real estate component, the banks will only accept the valuation from a registered valuer so wherever possible we encourage the sellers to obtain a valuation during the listing process.

The Multiplier

The value of the management rights business is assessed by applying a multiplier to the proven net profit. To ensure the net profit claimed by the seller is correct, the bank will insist on having a financial due diligence examination carried out by an expert management rights accountant.

First and foremost the multiplier is driven by supply and demand,the more people wanting to buy will encourage the seller to ask a higher price, conversely the fewer people wanting to buy will condition the seller to reduce the price. Having said that, multipliers are generally set having regard to previous sales of similar properties within the area.

The multiplier is also determined by a number of other factors including:

  • The appeal of the location
  • The quality of the property
  • The type of management agreement
  • The length of the term of the management agreement
  • The historical and potential profitability of the property

How The Asking Price Is Calculated

The net profit is multiplied by the multiplier to determine the asking price for the business component. This is then added to the real estate value of the managers apartment to arrive at a final asking price.

The valuation of a management rights property with a net profit of $125,000 asking a multiplier of 4, and a managers apartment valued at $350,000, would be as follows:

Component
Asking Price
Valuation Of Manager's Apartment
$350,000
Business Net Profit
$125,000

Multiplier
4.0
$500,000
Total Asking Price Of Management Rights
$850,000

In the Cairns Port Douglas area multipliers have traditionally been within a range between 3.5 to 4.5 times the net profit,however top properties now achieve a multiplier of 5 as the area has become widely known as one of Australia’s tourism hot spots and achieved a critical mass in infrastructure, adding to the fabulous natural beauty of the reef and rainforest resulting in a consistent growth in tourist numbers as well as buyers for management rights.