Over the past 10 years, 90% of all management rights businesses purchased by the Lancaster Group have been through a partnership. All of which have been successful and the first time partners have gone on to purchase buildings themselves or have also entered into other partnerships. Some now own shares in three or more buildings.
There are two types of partnership; silent or working partners.
Silent partners are generally in the industry or have been previously and are happy with the financial rewards the industry brings. They may prefer to remain in their present building and use their improving equity to purchase another property but require a working partner for it to work. There are some silent partners who have never operated a management rights but are happy with the returns they produce. While these partnerships can work the Lancaster Group recommends first time buyers enter into a partnership with an experienced operator.
This type of partner has been or has just sold a business and is looking for a large property that requires two couples to operate it. A net profit of over $400,000 would be required and the partners may operate on a month on and a month off basis. Generally they would own two units for their individual accommodation. The big advantage for the new working partner joining with the experienced operator is they have skipped the smaller entry level property and will be rewarded with a higher stable income, more chance of growth and therefore higher capital gain. The bigger the property the easier it is to afford to employ staff for the reception desk and gardening duties while the partners put their effort into marketing and improving the turn over.
A business partnership is somewhat like a marriage and a lot of thought has to be put into it before anything is signed.
You must see your accountant early to get advice on the best structure for tax purposes. Generally a partnership between the two parties or a partnership of their companies or the company trusts is the best vehicle, but there may be individual situations that require one of many other structures to be set up. You also must have an agreement to cover most eventualities such as; the ideal time frame you will own the building, if one wishes to leave the partnership the terms and conditions of the buyout must be agreed upon, the salary for the working partner must be agreed and what duties on the schedule of duties attached to the caretaking agreement they will be responsible for.
Like marriages, some partnerships do not work which is why it is important to have all terms and conditions of the relationship clearly written down.