The different types of managment rights for sale offer varying degrees of financial returns and lifestyle benefits.
Management rights are usually defined by the type of letting business being conducted on site. The different types of letting businesses included in a management rights sale are usually one of the following:
- Permanent or long term letting – a letting business conducted from a permanent residential complex.
- Short term letting – this type of letting business encompasses holiday letting, corporate letting and student accommodation.
- Mixed letting business – a complex may have a combination of both permanent and corporate letting.
- Caretaking only – the resident manager undertakes a caretaking function only and does not conduct a letting business on site.
There are various advantages and disadvantages to the different types of letting businesses. Generally speaking, although not always the case, one trades off return on investment for lifestyle in selecting a permanent letting business over a short term letting business, and vice versa. Let’s explore these advantages and disadvantages in further detail.
Permanent or long term letting
The main characteristic of a permananet complex is your tenants will be for a longer term, usually six months or more. This is in stark contrast to a short term letting complex, like a holiday complex for example, where tenants may only stay for one night. Therefore, generally speaking, a permanent complex means less work than a short term letting business due to less tenant movements and not having to have the office constantly staffed. This in turn equates to a better lifestyle.
Accordingly, the advantages of a permanent letting business are:
- The income stream is steadier and more consisitent. A tenant is usually secured for six months or more and a permanent complex is not subject to economic conditions of the tourism or corporate letting markets for example.
- There is usally less work involved in running the business. Less tenant movements mean less paper work, less marketing of the business, less office hours, less cleaning duties, less wear and tear and consequently less maintenance, as well as less tenant inquiries and complaints. When tenants lease a unit in a permanent complex they have an obligation to pay the rent on time and abide by the by-laws of the complex. If these obligations are fulfilled, managers of permanent complexes very rarely see their tenants. This translates to a better work life balance and a more relaxed lifestyle.
- There is less marketing and hard selling than a short term letting complex. Certain short term letting markets are very competitive (inner city corporate markets or holiday letting markets for example). Accordingly, short term complex owners need to stay abreast of their competitors room rates on a daily basis and are constantly promoting their business to ensure rooms are full. This is not required to the same extent if you own a permanent complex as most leases are only up for renewal every 6 months.
One consideration with a permanent complex is that you will probably have more face to face contact with owner occupiers living on site. The owners, collectively called the body corporate, are the people that pay you to undertake the caretaking duties. Accordingly, the more owner occupiers that live on site the more people that will be inspecting your work every day. Accordingly, you will need to pay particular attention to the duties set out in your caretaking agreement for the complex.
Short term letting
If you pruchase a management rights business which is a short term letting business, then you are essentially running a hotel or some other specialised accommodation service. Accordingly, you will need to provide a higher level of service expected by your niche market, whether they be holiday makers, the corporate business market or international students. You will need to market your complex to attract customers in your particular niche and to stay abreast of your competitors. This type of complex involves more work, but the returns are greater.
Accordingly, the advantages of a short term letting business are:
- The return on investment can be significantly higher than other management rights businesses. Managers not only make money from the collection of rent on behalf of the unit owners, but can also make considerable income from service charges to guests (like cleaning or linen hire services).
- There is the opportunity to promote assoicated services in your niche for additional income. For example, sell various types of tourism products (tours and show tickets) to the holiday market, a dry cleaning service to the corporate market and interent services to the student market.
- Many short term letting businesses, particularly holiday letting businesses, are situated in some of Australia’s most desireable locations. You can reside and work at a holiday destination in an enviable beachside location which has obvious lifestyle attractions for many people!
There are many considerations to take into account if purchasing a short term letting business. Most of the unit owners are likely to be investors and will be demanding a good return on their investment. This means you will be required to have a thorough understanding of your niche market and know how to promote your business effectively. However, you have an opportunity to significantly grow the capital value of your business if you successful market your complex and achieve consistent occupancy. There is no doubt that short term letting involves more work and requires the manager to be available to assist guests which are checking in and out on a daily basis. The amount of work involved can be relieved by employing paid help, but this opens up a number of other considerations – predominantly staff related and management issues.
It is for the reasons above that the majority of short term letting businesses are run by experienced management rights operators. If this is your first foray into the management rights industry, we would recommend a permanent complex to learn the ins and outs of owning and running a managnement rights business.
Hybrid business
In recent years, a number of hybrid business have emergered. This is typical for a permanent complex located in an inner city location where the manager has decided to undertake some short term letting to target the corporate market. This provides an opportunity for the manager to significantly increase their income but also diversify their revenue streams between more stable permant income, and the higher but cyclical returns from short term letting.
The ability to convert permanent complexes to short term letting business is reliant on a number of factors and can not be done in all cases. For example, the by-laws of the complex may specifically prohibit it. Many people have successfully converted a complex though and significantly grown the capital value of their business.
Caretaking only
This is a complex where only caretaking duties are undertaken and a letting business is not permitted to run on site. Although the returns are much lower in these forms of management rights businesses, the lifestyle aspect is obvious and appeals to those people seeking a supplementary or part time income. In rare cases, the complex may comprise all owner occupiers and the manager is unable to conduct a letting business on site until one of the owners decides to rent their unit out. This may offer some opportunity in the future for the manager to improve the capital value of the business.
Which type of business is right for me?
There are a number of considerations to take into account when assessing what type of management rights business is right for you. Short term letting offers higher returns but more work and resonsibility. Permanent letting complexes generally offer lower financial returns but a better work life balance. If you are new to the management rights industry, a permanent complex is probably best suited so you can learn and understand the industry and how to run a management business. For experienced operators, it depends on your motivating factors, whether they be investment returns or lifestyle.
That’s the beauty of the management rights industry – the different types of management rights bussinesses available means that people with all different levels of experience can find a complex that suits them.
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