12 Simple Tips for Selling your Rent Roll Business
We all know the difference between selling a well presented, attractive property to a poorly presented, unkept house.
Buyers are far more attracted to a quality home and more likely to pay a premium price. Sometimes we ask sellers to put on their buyers hat and consider their homes worth and presentation through those eyes.
Selling your business is no different.
The presentation of your business to the market is vital to achieving your desired outcome. A buyer will also require written evidence of all the information provided. They will take nothing on face value and will be receiving advice from their solicitor, accountant, bank manager and possibly friends and family prior to making any decisions. We need to present the property for sale in a method to convince all parties of the value of your business. Read more
A Quality Rent Roll Defined
With a lot of activity at the moment regarding Principal’s expanding, selling or merging, rent rolls and their value is a hot topic for discussion.
Understanding the value of your business provides you the opportunity to take advantage of the current market and expand your Business operations and Property Management Division through the acquisition of other rent rolls. Banks will loan to you on the basis of your rent rolls value, talk to your bank manager regarding conditions which apply.
If you are considering selling your rent roll, understanding the mechanics of its value allows you to ensure a Premium price is achieved. Talk with Kevin Hockey today about how you canmaximise your sale price.
A Quality Rent Roll defined. Read more
Is GST applicable in the sale of a Rent Roll
There is much variance, disagreement and confusion amongst advisors to real estate Principals regarding the application of GST upon the sale of a rent roll. This “variance” comes down to one particular point in relation to the sale…….but more on that shortly.
So who wants to pay more Tax?
Nobody put this question into better perspective than Kerry Packer who in 1991 was facing a federal investigation into the print media industry where he was asked whether he tried to legally cut the amount of tax he paid. His reply, as only Mr Packer could, “If anybody in this country doesn’t minimise their tax, they want their heads read, because as a government, I can tell you, you’re not spending it that well that we should be donating extra,”
None of us want to pay more Tax than we have to and even in this circumstance where the GST is likely to eventually be “refunded” in due course it isn’t an ideal cashflow position. Last week I spoke with the ATO for a ruling on its position regarding GST and real estate rent roll sales after accountants conflicted in their advice to the buyer and seller of a sale. Their response was to direct me to a website which covers the rulings of GST.
Firstly I was referred to http://law.ato.gov.au/atolaw/view.htm?docid=GST/GSTR20025/NAT/ATO/00001 and attention diverted to Paragraph’s 94 & 95 which reads:
94. DeliCo conducts a delicatessen business from leased premises adjacent to a large grocery retailer within a suburban shopping mall. DeliCo negotiates the sale of the business to another registered entity, NewCo, which has its own premises from which it intends to operate the delicatessen. The contract provides that the business name, plant and equipment, stock and goodwill are to be supplied to NewCo. DeliCo retains its premises and intends to commence another business from these premises.
95. Because the delicatessen is conducted from premises within the mall, some premises are necessary for the conduct of the delicatessen business. The supply is not the ‘supply of a going concern’ as DeliCo is not supplying premises which are one of the things that is necessary for the continued operation of the supplier’s enterprise.
The matter of an ongoing concern, I was told by the ATO, is generally defined by the need for the seller to supply the materials necessary to continue the business. This, he said, would be the requirement to provide the equipment necessary eg Fax machine, software etc and most importantly the premises in which the business was conducted. The first website above discusses this by saying it is necessary to supply premises to be considered the “supply of an ongoing concern”.
Further research took me to this website:- http://www.ato.gov.au/businesses/content.asp?doc=/content/19995.htm&page=1#P450_36547
14.13 Rent Roll
14.13.1 Is the sale of an agent’s rent roll subject to GST?
ATO Position – Yes, if the agent selling the rent roll is registered or required to be registered for GST. (If the rent roll is sold as part of the sale of the agent’s property management business, it may be GST-free as a supply of a going concern. For more information about GST-free supplies of going concerns, see GSTR 2002/5
So finally, if you buy a rent roll and relocate it to your own business at different premises, it is not considered an ongoing concern and therefore is subject to GST.
Should you purchase the rent roll and decide to operate it from the same location, it is very likely to be GST free and considered to be a sale of an ongoing concern.
The GST on the eventual sale, from the ATO’s perspective, is the responsibility of the seller. Should GST not be applied to the sale and the ATO at a future point were to decide GST is to be attributed to the sale, the seller will be expected to pay the outstanding GST.
As Kerry Packer said, don’t pay any extra than you have to, however, the Tax office is known to wield a big stick when it comes to not paying what it deems as being due.
Real Estate Agency Sales specialises solely in the sale of Real Estate Agencies and Rent Rolls, that’s all we do. Contact us on 3266 4242 or kevin@reas.com.au.
Borrowing against your Rent Roll
This is the year of opportunity – for those willing to grasp it. American Entrepreneur Warren Buffet said, Be fearful when others are greedy, and be greedy when others are fearful. Seems like the world is pretty fearful, so is this our chance to be greedy?
To take advantage of the potential opportunities which may arise for you and your business, you may need help funding your progress. This is where your rent roll once again becomes such an invaluable ally to your business. Apart from generating income, assisting in increasing market share, building your database and providing listing leads to your sales department, you may also borrow against your rent roll secured solely against your portfolio.
Like a snowball racing down a hill gathering enormous momentum and strength, this amazing asset called Property Management can self stimulate the growth of your business, if you allow it!
Assignment Clause and your Business
The Queensland Government and Office of Fair Trading, due to much lobbying from the Real Estate Industry, provided real estate agents the option to “Assign” an appointment by Landlord or Vendor with an agent, to a buyer of the business or rent roll.
This action was taken due to the complex nature and regular transactions which are unique to our industry.
Prepare now for the future. Ensure all Form 22a’s, and especially your Appointments to Act with your Landlords (Form 20a), are correctly initialled by the homeowner as accepting the assignment clause within the agreement.
The eventual sale one day of your rent roll is highly likely to include a provision called a “retention clause” whereby any landlords who choose not to transfer the management to the buyer will not be paid for by the purchaser. To limit any potential loss during this period a fully signed listing appointment with the assignment clause completed will be a definite advantage.
Therefore, as the Principal and Business owner, there is significant advantage at the time of sale to ensure the assignment clause is completed. Ensure your team understand the requirements under the provision of the legislation, complete the assignment clause and have the necessary skills to handle any objections a potential landlord or seller may have.
Written by Kevin Hockey
Mobile phones and Real Estate
Just recently I have heard the news of a successful Brisbane agency Principal having been diagnosed and operated on for a Brain Tumor. The prognosis isn’t good from all accounts and feedback he has received from the medical profession points toward the use of his mobile phone potentially having played a part in this dreadful disease.
Due to my own experiences with the effects of mobile phones which include headaches, ear aches, extreme heat plus sore jaws and teeth like a toothache, I have long held the belief mobile phones could easily be causing health issues we are yet unaware of. For me, it began immediately when I changed from analogue to digital.
Earlier this year 60 minutes ran a programme highlighting the potential dangers of mobile phone use and an extended interview with Dr Charlie Teo, an Australian neurosurgeon and co-author of a study on mobile phones and their effects.
Dr Teo said “…if the question is do I believe that mobile phones can cause brain cancer, the answer is yes I do.” In talking with Liam Bartlett from 60 minutes he went on to say “That’s a huge fear. I mean, what if we’re right? Then if we’re right we’re going to see a huge increase in brain tumours and brain cancer in the next decade or so. It’s going to be frightening. And guess what Liam, we’re already frightened by what were seeing.”
Does a Real Estate Agency sales business hold any value?
What is it with us as real estate professionals that we appear hell bent on undermining ourselves and place little to no value on what we do?
Most real estate agents I know work really hard. Most work 6-7 days per week, are genuine, fair and honest and entered real estate because they love helping people.
We work long hours and often feel like we are a psychologist, marriage counsellor, negotiator, accountant, solicitor, town planer, taxi driver and provide a solution to world peace all at the same time. Yet we seem destined to work long hours whilst sacrificing family and personal commitments without a fair expectation of financial reward at the end.
It’s a common held belief within our industry that a real estate sales business does not hold any value or goodwill and it is next to worthless. I am unsure why we would want to encourage this line of thinking as it is not advantageous to ourselves when it comes time to sell.
A general business, whether it is a takeaway store, newsagency or hairdressing salon etc, all hold a sales value. Commonly it will entail cost of stock and a multiplier upon the profit. Real Estate should be no different and a profitable office must be worth something. However, just like general business, without profit, market share and some structure then the business is unlikely to sell or be worth very little. In real estate, “very little”, is likely to be second hand replacement cost of plant and equipment.
Managing your Property Management business
A decade ago Property Management was perceived as the very poor cousin to Sales within a real estate agency however in 2010 the enormous increases in returns, cashflow and value demand we as Principals are far more professional in our approach to this part of our business.
A rental department provides enormous long term benefit to your business.
- Business energy and momentum
- Branding
- Equity
- Sales leads
- Cashflow
To achieve maximum benefit you as the principal must set the standards, monitor performance and create accountability within your Property Management business.
Are we really performing for our real estate clients?
One of my best friends, in fact my longest friend of over 30 years, Brad, moved house in June last year. When settlement was not effected on the Monday as due this normally happy, hilarious, easy going, affable mate became completely irrational and angry. The stress on him caused him to completely lose the plot.
At 45, this was the first time he had ever sold a property. A builder/ developer had bought the home and for some reason settlement was being held up. It was school holidays, he was on holidays from work and he had visualised a smooth transition where he’d have plenty of time to transfer into his new home. Unfortunately things began to unravel differently than expected and as much as I tried to assist him, it was an incredible insight into the process that everyday families go through when they buy and sell real estate.
As settlement was now overdue he was living in his old house with no phone, no food or refrigerator and no tv. He was on holidays and the days were being eaten away by sitting around waiting for settlement to be effected. He was upset that his son was spending his school holidays sitting around, unable to do anything as they remained in limbo. Undoubtedly he was excited to move into his new home and he was being denied!!
