Buying Established Business -
Published: 30 August 2006.
Many people like the relative certainty that comes from buying an established business: what you see is what you get.
This goes for both the business and the building.
Existing buildings have gone through the "teething problems" that people talk about with new buildings. All the building defects have been attended to.
Of course, the building might be at that point where it needs some money spent on it. You will be the one who will need to convince owners to put their hands in their pockets.
This is not always easy. As an experienced body corporate manager always says, "it is very dangerous to get caught between a unit owner and a bucket of money". Communication and education about the benefits of refurbishment are the keys to encouraging unit owners to spend money.
There is another advantage to buying management rights in existing buildings. Many owners of new units and brand new complexes have very high expectations of the financial performance of their investment units. Sometimes these expectations are too high. They might still have the stardust in their eyes sprinkled by the selling agents. As time passes these expectations become more realistic.
Existing businesses are capable of easy verification of income and expenses. It's all there to see. You do not have to rely on projections and guess work.
Tips:
Ask these questions
- When were the units last refurbished?
- Is there any sign of concrete cancer?
- Are there problems with water leaking?
- How much money has the body corporate saved in its sinking fund for future maintenance like painting?
- Has a sinking fund analysis been carried out?
- Is there any history of dispute within the body corporate?
