Are management rights a good investment?

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Originally Posted On: Are management rights a good investment? (accomproperties.com.au)

Management Rights are proving to be “bulletproof” investments that have defied the economic assault of COVID-19.

Returns of up to 20 per cent on investment – especially in complexes offering long-term rentals ­– have been recorded as a previously hidden industry booms amid the economic hardships sweeping the world.

ResortBrokers Managing Director Trudy Crooks said enquiries for management rights had increased exponentially during the pandemic as people realised that the industry provided an opportunity to effectively “buy a job, buy a home”, backed by a caretaker’s salary.

“These types of investments offer guaranteed income, and often a home and lifestyle all in one, and with job security now a real issue for many people, management rights businesses are in high demand especially for the permanent properties,” Ms Crooks said.

“It’s your business and your workplace which means you can be your own boss.

“If you own management rights, you can forget peak hour traffic. You can catch a few waves without travelling hours to the coast.

“Or you can enjoy the vibe of city life, day and night, without leaving the sanctuary of your own home. Whatever your ideal lifestyle, this is the perfect live-work-play combination.”

Her comments were backed by Mike Phipps, director of Mike Phipps Finance, who told AccomProperties: “The management rights property management and caretaking model has proven itself since first contemplated on the Gold Coast in 1965. The business model enjoys an enviable reputation among the banks and has proven resilient during the GFC and the recent COVID crisis.

“A business that incorporates a monthly salary and a residence is unique within the Australian context and in my view provides a risk profile significantly lower than just about any other sort of business. This view is demonstrably shared by the banks that continue to provide credit policies which are the envy of the broader business community.

“No investment is without risk but I think the combination of a near bullet-proof model and access to credit on attractive terms makes management rights a unique and compelling proposition.

“I see a very bright future for rights Australia wide.”

Michael Philpott, a Director of MR Sales, said management rights represented “an outstanding opportunity second to none”.

‘But it’s a hidden industry for most people outside the hospitality sector,’’ he said.

“A lot of people on salaries and wages are blown away when they hear the potential of the business.

“It’s one of the most bulletproof industries around that’s why the banks like them so well and are willing to lend at high rations because they see it as such a low-risk, high return investment.

“Returns can range from 12 to 15 per cent on investment but larger syndicates, with the right gearing, can allow a manager to be employed and still achieve returns of 15-20 per cent.”

Tony Rossiter, from Queensland-based accountants Holmans, has been specialising in management rights advice for more than 20 years but adds a note of caution.

“COVID and the uncertainty in the business community has certainly had an effect, especially with an impact on short term letting,” Mr Rossiter said.

“The last couple of months have shown promising improvement and a post-COVID boom for that section of the industry is building.

“But someone buying into the industry has to be cautious of the numbers they’re relying on and with COVID it’s like the financial planning advice – past performance is not necessarily a guarantee of future incomes.

“Over the last 20 years I’ve seen a lot of people doing well, though.

“The business world has rarely been challenged more than we have been during COVID, and we still haven’t had a single one of our management rights clients go to the wall. You couldn’t say that about most industries.’’

Mr Rossiter said while some people started in the business with management rights netting them less than $100,000 a year, some businesses generated an annual income of more than $2 million.

“The average range is $200-300,000 for a husband and wife running a complex,” he said.

Trevor Rawnsley, the CEO of the Australian Resident Accommodation Managers Association, said despite the world going through “the worst economic downturn in memory … the values of management rights have stood up and the rights for long-term properties are actually increasing in value”.

“The market understands that management rights are very resilient in terms of economic pressure,” Mr Rawnsley said.

“Restaurants are falling over, retailers are falling over and I’d hate to be involved in commercial real estate right now. But the business of accommodating Australians – especially long term ­– remains a very profitable business.”