28 Dec 2012
Words Tim Admin

Letters to the Editor

Dear Sir or Madam, Thank you for the July 2012 edition of Informer which I read with interest. I am writing to you in relation to the editorial article by John Mahoney. I am going to agree with many of his comments but strongly disagree, with reasons, to some of his other comments. As it happens I am a client of Mahoney Lawyers and I have put in an application to work there but I have never actually met John Mahoney. I concur with a lot that Mr Mahoney says in relation to expectations and the carrying out of caretaking duties. I too have seen some complexes where I think that the caretakers do too little and it shows. Recently I spoke to one who said that rather than clean the barbecues he locked away the gas bottles and charged a $50 deposit to get them out for a resident to use. Others refuse to look after the pool or just do a poor job of everything. ln a recent ARAMA survey more than 80% of caretakers thought that training for committee members should be compulsory but perhaps there should be compulsory training for caretakers too. I also agree with some of the comments made in respect of marketing of management rights. Caretaking a complex is reasonable money for what should be a reasonable amount of work. Too many agents make the work out to be far less than it really is. lf you excuse the phrase you are in 'dire straits' if you think that management rights is 'money for nothing'. The real lifestyle benefits of this industry include the commute to work and the ability to control your schedule. Not having to travel in the rush hour to get to and from work saves time, money and stress. Until you change to working for yourself at home you really can't imagine how much better life is without the commute. Control of your schedule is the other great benefit. lf you want to play golf or go fishing on Tuesday then do the mowing on Monday or Wednesday. The work still has to be done but you control when. lf you want a few days off then get everything done and shiny and disappear for a while. Go shopping when the shops are quiet, book your car in for a service whenever it suits, not just when you can spare it. You can easily save 15 hours or more a week just in the commute and being able to do tasks when others cannot. How much better to play a leisurely round of golf on a Wednesday than to be part of a huge line up on a Saturday? When agents tell prospective buyers that there is 'only one day a week'to work at a complex the buyers look at them sideways. We did and I've see prospects who have been brought here do the same. No one will believe that you will get very well paid for next to no work. lf agents stressed the benefits of the commute and control of the schedule the prospective buyers would find it easier to believe. That brings me to the point where I am in furious disagreement with Mr Mahoney. lt's about the money. lt's also about the concept of 'time and motion'. Mr Mahoney uses an example of a remuneration of $125,000 suggesting about 80 hours work per week. His maths is correct, at $30 per hour it does work out to 80 hours per week. The problem is that time and motion and applying an hourly rate only tells half the story. lf a lawyer charges you $300 per hour it's not because that's what he gets paid and the same applies to a plumber or electrician who charges about $90 per hour. All these people have business overheads, offices, vehicles, telephones, bookkeepers or storerooms to pay for. WELL SO DO OWNERS OF MANAGEMENT RIGHTS BUSINESSES! That's right. Caretakers have overheads too. To get back to Mr Mahoney's example a couple getting $125,000 per annum cannot put 80 hours a week into the place or they would starve. To get that remuneration they would have had to pay close to $600,000 for the business at a 4.8 multiplier. They either have to borrow that sum, use their own capital or, more likely, a combination of both. Either way they are either paying interest or losing interest income on that sum. That is an expense of $50,000 per year before they pay anything off the loan. So, this couple is really getting $75,000 for 80 hours work a week. Out of that they have to supply an office and provide a vehicle, they have to equip the office and supply tools and equipment. They may not have to pay for consumables but many caretakers do have to. Then they have to have a place to live and to put food on the table. I deliberately have not mentioned letting income because the caretaking has to stand alone. Letting pools come and go so the income is not guaranteed, there is additional work and there are expenses to go with the letting income which is another reason to leave it out of the equation. Barry Turner agrees that caretaking income must stand alone. Which brings me to 'time and motion'. ln my view it's the people doing these studies who come closest to getting 'money for nothing'. ln reality any experienced caretaker can walk around a complex and come up with a fairly accurate estimate of the work that has to be done and the time that doing that work will take. There is no magic in listing duties and times. Using a list makes sure that you are less likely to miss things so that is handy. Even if the time and motion study is useful it only tells half of the story because Barry Turner and David Leary both ignore business overheads or give them only a cursory and partial mention. Having a study that tells you how many hours you need to provide an office that is open without providing for the expenses of paying for that office is of little use. ln the same way a study that allows for you to spend one hour per week taking rubbish to the tip without including any allowance for the cost of providing a vehicle to use is also of limited use. So the lawyer who charges $300 per hour probably pays himself less than $100. The plumber and electrician probably pay themselves less than $50 per hour. lf we take reasonable overheads away from Mr Mahoney's example but stick to the 80 hours we end up with about $14 per hour. That's because just like the lawyer, the plumber and the electrician we are business owners too. We are not employees of someone else. ln fact, although we have not had to put ourselves through university or through an apprenticeship we've paid for our business with money rather than time and the cost is high. A better way of looking at Mr Mahoney's example is that a caretaking remuneration of $125,000 should lead to an expectation of between 30 to 35 hours per week of actual task performance. And it's amazing how much can be done in that time. I am involved in the caretaking of two complexes each of over 100 residences and both built in the old way with lots of open space and facilities. We receive compliments in relation to each of the complexes and neither of them require more than 30 hours per week in actual caretaking. With respect to Mr Mahoney most of the remuneration reviews that are conducted are the ones within the statutory period. So you have a caretaker in place who has financed and bought a certain income. lf that caretaker can justify an increase in remuneration it's win-win for him. He will get extra income that he has not had to finance and, when he sells the business, he will make extra profit because of the multiplier. ln this scenario using someone with a reputation to justify the hours is more likely to succeed than simply doing it himself. It's credibility rather than actual ability. But, even so, the numbers that the time and motion people will come up with are still wrong because they still don't take into account overheads. I think that time and motion people should just do that. Provide a proper business valuer with the results of their calculations and then stay away from the money side of the valuation. Or take proper note of overheads and include them in the calculations. Management rights is a great industry. You buy yourself a job with great lifestyle benefits. You get a reasonable income for a reasonable amount of work and you get to write your own work schedule. You don't have to worry about being made redundant by your boss.