The right management rights for you

The dynamics and demands of a management rights business are influenced by its location and tenancy type. Are you (and your business structure) best suited to the high-turnover letting in popular holiday areas? Would you do better managing longer tenancies, such as those in residential city apartments or suburban townhouses?

Your experience and temperament are also factors to consider when choosing a type of business.

Take me straight to

• Short-term letting (holiday and tourist)
• Longer-term letting (residential)
• Proposed schemes (off the plan)
• Shared ownership (syndicates and partnerships)
• Corporate
• Franchises

Short-term letting (holiday and tourist)

People will pay a premium to rent short-term holiday accommodation, especially in peak seasons. Stays commonly range from overnight to a few weeks. Resort-style schemes in a popular holiday or tourist area have the potential to produce higher rates of return per lot than longer-term residential lots. This needs to be balanced against the demands that high turnover of tenants makes on the manager and the inherently seasonal nature of occupancy rates.

Unlike long-term letting, you don’t really have an opportunity to screen guests. People usually book accommodation by phone, through travel agents, or marketing companies. You probably won’t meet your tenants before they arrive.

Managing short-term letting does have its advantages. Guests are relaxed and, generally, there is an atmosphere of excitement and delight. Managers say they enjoy being associated with their guests’ holiday experience, and actively cultivate repeat business and referrals through engaging positively with their guests.

You and your business need to be geared to these dynamics with reliable systems, support staff, suppliers and contractors. You must be willing to work at marketing accommodation in your scheme. Local tourist associations often have cooperative campaigns to promote a destination and can provide valuable networking opportunities.

Longer-term letting (residential)

Longer-term tenancies in residential schemes are typically in blocks of six or 12 months. The manager needs to carefully select tenants who can meet their rental commitments, take good care of the lot and not cause a nuisance to other residents and tenants.

Owners are more likely to be permanent residents in these schemes and tend to pay close attention to the manager’s caretaking performance.

While the rate of return is generally lower than for resort-style schemes, the manager can more confidently predict income and costs, and therefore plan with more certainty.

Good relationships – with tenants and owners – are important if the manager is to maintain high occupancy rates and retain a high proportion of lots for letting.

Proposed schemes (off the plan)

Assessing the potential of a new scheme, especially before construction has begun, requires you to do rigorous research and consult extensively with the developer, your accountant, lawyer and other experienced advisers.

An experienced off-the-plan sales agent can also provide you with useful insights. For instance:

• How well will the layout of the complex function from the manager’s perspective?
• How many lots are likely to be in the manager’s letting pool?

Initially, you need to satisfy yourself that the developers can deliver what they propose. Examine their record. Were their previous projects successful? Do they have an experienced management team? Are they financially sound?

At this stage, you won’t know how many owners will offer you their lots to let. Talk to a specialist lawyer and an accountant about structuring the agreements for a number of possible outcomes. You should discuss possible letting pool numbers with your advisers and ensure that an off-the-plan contract includes appropriate claw back provisions.

Look at how the developer or their agents are marketing the project. Are they making realistic claims about the returns that lot buyers should expect from letting? Is the rental market demand growing, at plateau or falling? (Once the project is completed, lot owners will expect you, as their letting agent, to deliver the claimed returns.)

One advantage of buying rights to a scheme off the plan could be that you have a say in the design and location of the manager’s lot – your future home and business address.

Shared ownership (syndicates and partnerships)

Sharing the cost of buying management rights could be considered for a range of reasons. These include:

• Leaving you with more cash in reserve.
• Having a committed partner to share the workload and give you more free time.
• Allowing you to buy further up the market.

Your partners or syndicate members could be actively engaged in the day-to-day running of the business, or silent.

It is essential to have the roles, responsibilities and privileges of all investors clearly set out in a formal agreement. In the demanding environment of scheme management, even family members and old friends can fall out. Your lawyer should have current knowledge of commercial realities, management rights and partnerships.

Corporate

Schemes that target the corporate letting market are generally in or near the CBD. They provide business people with temporary self-contained accommodation – typically from several days to several months. The clientele can be in town on assignment, between residences or taking stock of the local residential market before buying in.

Owners often provide furniture, linen and crockery and some managers will offer apartment servicing.

The rate of return per lot is generally higher than that for longer-term residential letting. A premium can be justified by factors such as flexible letting periods, prime location, quality of the lot or the level of services and facilities provided.

The demands on the manager tend to be less intense (certainly less than in resort-style schemes) and the inner-city location usually means there is little or no landscaping to care for.

Franchises

A strong franchise brand should provide you with business development, administration and marketing support. If you have limited experience with management rights, a franchise can fast track your education. The association with a well-marketed franchise brand can also channel business into short-stay schemes in holiday areas.

If the management rights you are buying are already operating under a franchise arrangement, you will need to establish whether the franchise will add value to your business.

If you a keen on the idea of a franchise, it is a good idea to investigate the costs and benefits of several franchise models or brands while you are shopping around for management rights.

Like franchises in the retail sector, you pay for your association with the franchise brand. The fee can be a set amount paid at intervals, a percentage of your gross turnover, linked to the number of bookings you receive through the franchise network or a combination of these factors.

We strongly recommend that you get legal and accounting advice from specialists in management rights and franchising.