Management rights is a business model concerned with all facets of on-site caretaking and letting within a body corporate scheme.
What Are Management Rights?
Traditionally, management rights consist of three fundamental components:
- The ownership of real estate in a community titles scheme or body corporate. Typically, this will include an office or the rights to use an office.
- A contract for the property's caretaking, such as common areas (e.g. grounds, parking, pools, paths and all other amenities).
- Authorization to let lots on behalf of the owners within the scheme, acting as their letting agent.
Management right agreements can contain multiple variants. For example, some management rights will include property ownership, while others are caretaking and letting services only.
Another significant difference is some are supervisory – caretaking services are outsourced or sub-contracted, and some involve the managing company conducting all work in-house.
It is imperative that you understand what it is – as an investor – you are buying.
Management rights apply to various property developments, including residential units or townhouses, commercial buildings, resorts, student accommodation, retirement villages, and more.
Investors are attracted to management rights due to their predictable investment return, lifestyle choice, and security of acquiring real estate with a business.
Purchasing management rights includes the right to acquire a resident letting agent license. The license permits the holder to collect rent and manage properties within the community titles scheme.
The required education needed can be completed via correspondence or attending a course facilitated by an accredited training provider
Types of Management Rights
There are several different types of management rights which include:
- Holiday letting
- Corporate letting
- Residential letting
- New management rights (off the plan)
- Existing management rights
Holiday letting involves management rights to short term accommodation, similar to running a holiday resort or hotel. Management of the facility must market the property to attract holidaymakers. The higher returns associated with these properties are very attractive to investors compared to returns for longer-term rentals.
Additionally, the opportunity exists to generate income from various service charges, including cleaning, linen hire, and ticket sale commissions.
Location is critical with these types of management rights, as well as the property's amenities such as pool, spa, sauna, children's playground, tennis courts etc.
The drawbacks with holiday letting management rights are it is a more intricate business to operate. Good management and marketing skills are paramount, as the business is affected by cashflow variations due to peak and off-peak periods.
Involves attracting tenants, collection of rentals and maintaining residential apartment or townhouse developments. It requires liaising with lot owners and maintaining good relationships.
Permanent letting such as residential letting provides a steadier cash flow and higher occupancy rates than holiday letting. Less marketing is also required, as once a tenant is found, typically they will stay for an extended period.
The downside is a lower rate of return per lot when compared to holiday letting. Also, generally, there are owner-occupiers in the complex and local real estate agents will compete to find tenants and manage the property.
Similar to residential letting, however, the sector is commercial instead of residential. Advantages here include higher returns compared to residential letting, however low occupancy rates can be a factor for some complexes that have difficulty finding new tenants or do not have existing stable tenants.
Buying off the plan
Buying off the plan is when you buy management rights from a developer. Buying directly off the plan is more complicated. All documentation has to specific, detailing exactly what you're purchasing.
Any documentation changes need to be negotiated early as the developer may need to disclose changes to buyers, which may trigger termination rights for buyers of lots in the development.
Buying off the plan carries less certainty than buying existing management rights. As you will be starting a new business from scratch, it is critical that you know how many lots will be available to let, and that the relevant documentation is outlined to protect you. You may also need to navigate delays in settlement and building defects. A major advantage of buying off the plan is typically it’s lower in its price.
Buying existing management rights
Reduces the level of uncertainty. The number of lots will be known at the point of purchase, and you will have a good understanding of historical financial performance.
Key considerations will be the age of the buildings and whether any substantial works will be required. Also, you'll want to know of any on-going disputes within the body corporate.
Are Management Rights Businesses Secure?
As with all businesses, purchasing management rights is not without risks. However, banks and financiers who have expertise in management rights and risk assessment consider them low risk.
This is particularly true after the appropriate due diligence regarding to the documentation inspection by lenders and purchaser's solicitors, in conjunction with a complete on-site inspection of the property and analysis of the books, if it is an established management rights business.
If you are interested in purchasing management rights, please contact the friendly team QICG (Queensland Investment Consulting Group). We are leading commercial investment consultants located in South-East Queensland, and we would be happy to help answer any questions to help guide you through the entire process.
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