The dynamics and demands of a management rights business are influenced by its location and type of tenancy. Some businesses are fast-paced and demanding, others are more relaxed. Some people are better suited to a high-turnover letting in a popular holiday area, others to managing longer tenancies, such as those in residential city apartments or suburban townhouses.
Short-term letting (holiday and tourist)
Resort-style schemes in popular holiday or tourist areas have the potential to produce higher rates of return per lot than longer-term residential lots. However, while people will pay premium rates for holiday accommodation, especially in peak seasons, this advantage needs to be balanced against the demands that a high turnover of tenants makes on the manager and the seasonal nature of occupancy rates.
Longer-term letting (residential)
With a slower turnover, ranging from 6 to 12 months, long-term letting can be a lot less demanding than short-term letting. The rate of return is generally lower, but it’s easier to predict income and costs. It’s also essential to have good people skills, as strong relationships can be integral to your success.
Corporate (short-stay)
Schemes that target the corporate letting market with temporary self-contained accommodation can be quite lucrative. Flexible letting periods, prime locations, quality of accommodation and the level of services and facilities provided make charging a premium easier to justify.
Proposed schemes (off-the-plan)
Arming yourself with the right questions before you do your research, and making sure you consult extensively with the developers, your accountant, lawyer and other experienced advisers, will help you to assess the potential of a new scheme. Things to consider include:
- The developers track record – will they deliver what they propose?
- How many lots are likely to be in the manager’s letting pool?
- Is the rental market demand growing, static or falling?
Shared ownership (syndicates and partnerships)
Choosing partners, syndicate members or even family to share the cost of buying management rights can have advantages:
- You’ll have more cash in reserve
- You’ll have a committed partner to share the workload and give you more free time
- You can buy further up the market
Important considerations
- It’s essential to have the roles, responsibilities and privileges of all parties clearly set out in a formal agreement
- Make sure your lawyer has current knowledge of commercial realities, management rights and partnerships
Franchises
The concept of a franchise can be quite appealing, with its business development, administration and marketing support. But like franchises in the retail sector, you pay for your association with the franchise brand. Start by establishing whether the franchise will add value to your business and then, if you still like the concept, investigate the costs and benefits of several franchise models or brands while you’re shopping around for management rights.