Partnerships

Advantages

The core reason to enter a Management Rights’ partnership is it provides the ability to purchase a significantly larger business. The larger the business, the greater the return as more equity is built more quickly. The greater the number of units in a complex increases the income levels disproportionately. Partnerships are generally formed for larger properties providing a net income of $250K or more.

Key benefits of partnerships are:-
•    ability to purchase a larger property
•    increase in income
•    greater capital gain
•    ability to be matched with experienced operators
•    higher return on investment

PCS Finance specialises in facilitating partnerships where one partner is the active/working manager and the other partner is a silent investor/group of investors. Historically, a silent and working partnership team is more likely to succeed than partnerships where there are two working partners. However a two working partnership team can work successfully with workload and time commitment sharing advantages. A partnership does not require equal investment with it possible for silent or working partners to invest as little as 5% or $100,000.

When entering a partnership an agreement is likely to include a stability clause for two or three years so the investor is guaranteed a reasonable term, increasing the likelihood of investment success. At the end of the stability clause term, a partner may have a right-to-purchase the other share of the business. However, experience is that this rarely occurs with partnerships usually dissolving when capital gain peaks and it suits both parties to sell.

Additionally, partnerships are also protected by the Manager’s employment contract, with the Manager as an employee may have his employment terminated for not carrying out agreed duties.

Financing

When a partnership is purchasing a Management Rights, it is still advisable to maximise a bank loan to take advantage of the gearing. PCS Finance has structured financial packages for numerous partnerships to take into account the individual situation.

As an example, for an investor with multiple buildings, a non-crossed collateralisation agreement (stand-alone) has been structured so the Manager puts in the maximum amount possible and an investor is then sought to make up the difference.

PCS Finance will identify all of the parameters and opportunities you have as an investor (working or silent) in a Management Rights partnership and then seek out the right loan structure and potential partners.

Looking for a Partner

PCS Finance holds a confidential database of both silent and working partners, allowing us to match clients to the right partner meeting conditions, credentials and property requirements. This allows you to be in the position where you can act quickly on a new property opportunity when it is released onto the market. PCS Finance has arranged partnerships between two parties and entered into a contract the same day a property is released onto the market to ensure the opportunity is seized and secured.
Click here to contact PCS Finance to enquire about searching for a partner.

Silent Partner

The silent partner is looking to ‘invest’ in a Management Rights business because they see its potential in providing a solid investment return. A silent partner may be one individual or a group of investors.

Many silent partners have knowledge of the industry by either owning other properties or by direct involvement in the industry. Some silent partners are ‘working/active’ Managers of another property and they wish to invest equity built up in a subsequent property. It is usual for a silent partner to own multiple ‘half partnerships’ in a variety of properties as their equity and portfolio grows.

A Management Rights partnership is particularly attractive to silent investors as the business is virtually a ‘no cash-no debtor’ business with independently audited trust accounts. In some cases the returns for a silent partner can range from 10-20%.

Active/Working Partner

The working partner is the hands-on business partner who will financially invest in the business alongside investing in time and effort. As a ‘working’ owner in a Management Rights business you will receive an income, a place to live and an investment return on the business.

If you intend on ‘working in the Management Rights business you purchase, there are some key advantages to forming a partnership with a ‘silent partner’.

The advantages of becoming a ‘working partner’ in a Management Rights business are:-
•    the ability to buy the Management Rights for a larger property, providing greater turnover and income
•    greater opportunity for profit growth and increased capital gain
•    an increase in choice of business and location
•    ability to employ staff due to the increased business size, and therefore freeing up the Managers’ time for business growth and management duties

In essence, if you are the ‘active/working’ partner, you can potentially double your expected income and triple your capital growth by going into partnership versus purchasing alone.