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Management rights is the industry name for a business arrangement between resident managers of strata titled properties (complexes comprised of units owned by different entities) and a property developer or body corporate made up of unit owners.
Two agreements are key to owning management rights:
A ‘caretaking agreement’ permits a manager (or managers, often a couple) to live in one unit onsite and take care of common areas within the complex, such as swimming pools, tennis courts, stairs, the car park, etc. A base salary and list of responsibilities are included in this agreement with the body corporate.
A ‘letting agreement’ with the body corporate gives a resident manager exclusive rights to let out units in the complex on a commission basis. The nature of commission is often negotiated with each unit owner.
Management rights owners always reside onsite but the nature of their accommodation fluctuates depending on the complex. Some properties offer resident managers a one-bedroom unit and office for day-to-day operations; others may offer a luxury penthouse suite and private elevator.
Each management rights agreement is as unique as its property.
So you want to buy a hotel?
Hotels come in many shapes and sizes from smaller boutique properties to mid-sized B&Bs, larger multi-facility operations and huge, resort-style enterprises. To become a hotel owner is to invest in real estate as well as a business. There are many things to consider when purchasing a hotel investment.
What to consider when buying a hotel property:
Location: if you build it, will they come? Proximity to tourist hotspots, business hubs, hospitals, universities, etc., will influence bookings.
Competition: how many similar properties are in the area? Point-of-difference is a massive marketing tool and as an independent accommodation provider on social media it is much easier to market something that stands out.
Local business: will your guests have things to do? With Google maps on smartphone speed dial, it is easier than ever for potential guests to research local areas. People are more likely to stay somewhere if they spot a couple of interesting cafes, shops or bars within walking distance.
Development: what’s going on in the next few years? In just five years, a whole town or area can completely change. It’s well-worth checking what planning permissions have gone through; ask the locals about development rumours or upcoming upgrades. Find out if any new shopping areas, parks, schools, restaurants, roads, etc., are on the cards. These could all have an impact on future bookings for better or worse.
So you want to buy a motel?
Motels are uniquely designed to target motorists and have a distinctively low-rise aesthetic. To purchase a motel outright and operate it yourself, would infer a situation known within the industry as ‘Freehold Going Concern’. This method of motel purchasing was particularly popular prior to the 1980s.
Nowadays, in Australia, people can purchase a long-term lease from a motel owner or landlord in a situation referred to as a ‘split’ motel. This motel leasing idea was pioneered in the 1980s by now managing director of Resort Brokers Australia, Ian Crooks.
How long is a motel lease?
The standard length of a lease in a split motel is approximately 30 years, made up of a ten-year baseline, plus multiple five-year extensions. Similar to a management rights agreement, the leasing party usually lives onsite and takes care of daily motel operations.
Who does what?
In both motel models, the landlord owner of the property takes care of all structural lot maintenance repairs. In a split motel, the landlord owner also receives annual rent from the leasing party. The rental agreement may include a review clause but usually increases by CPI each year.
The leasing party in a split motel runs the business side of things, doing all they can to increase profit-by-occupancy. They pay all operating fees and costs, including utilities. The owner becomes a passive investor in this agreement, responsible only for structural land/property maintenance.
So you want to buy a holiday park / Caravan Park?
A holiday park is an umbrella term referring to parks or areas that house caravans, cabins, camp sites and mobile homes for short-term let, permanent use, or a mix of the two.
Holiday parks are increasingly innovating and diversifying their space; not just with powered sites, ‘glamping’ rooms and ensuites but with resort-style facilities and varied services.
What are the purchasing models?
Like motels, holiday parks can be bought outright in an agreement known as ‘Freehold Going Concerns’, or in a ‘Split’ model that involves a long-term managing lease.
In the freehold model, an owner-operator rules the roost, covering all fees, administration and maintenance as well as marketing, making bookings and keeping all profits.
In the split arrangement, it is the leasing party’s responsibility to operate the park, doing all they can to increase profit-by-occupancy, and pay the owner an annual rent. The rental agreement may include a review clause but usually increases by CPI each year. The owner becomes a passive investor in this agreement, responsible only for structural land/property maintenance.
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