FOR the last few weeks the world’s economies have been on a financial rollercoaster ride that has left many investors nervous and queasy.
The on-again, off-again tariff impositions by the Trump government in the United States have seen stock-markets behave like dodgem cars without steering wheels.
Markets hate uncertainty.
But those of us who work in management and letting rights have always admired the extraordinary resilience of our industry, and in this time of global uncertainty we can be glad we work in a business with strong foundations and a proven track record to weather storms of any kind.
Buying into management and letting rights is a bit like buying gold – one of the few assets that goes up during volatile times because it is seen as a safe place to park your money.
The business of management and letting rights has been operating in one form or another for more than 50 years, and in that time has developed an enviable track record as it has matched the growth of the community and strata title industry.
There are well over 4000 management and letting rights operators in Australia and they reflect an industry that not only has to attract holiday and residential visitors but also investors.
MLR has not only survived several major upheavals that destroyed other industries, but with every crisis it has faced, our industry has come through it glowing on the other side.
It is also a lucrative business model offering so many benefits to its operators.
What started out decades ago as an improved service delivery model for holiday makers on the Gold Coast has now blossomed to include other states and long-term residential tenancy accommodation in schemes right across Australia and in many other parts of the world.
The MLR industry generates close enough to $60 billion to the Australian economy annually and that number is only rising as more Australians embrace high density living options in both the long-stay residential and short-stay tourism accommodation sectors.
Valuers will always say that certainty equals values. So anything that’s uncertain – and we’ve seen a lot of uncertainty coming out of America in recent weeks – is going to have some impact on the economy.
But regardless of all the hot air from the White House and the ill winds it has produced recently, everyone involved in our industry knows that MLR businesses are stable investments that have proved to be good long-term businesses with little risk and high rewards.
No matter what is thrown at the management letting rights industry, it has proved time and time again to be resilient and stoic.
Over the last few decades the MLR industry has faced the Ansett pilots’ strike which we came through quite well.
There was a little bit of an upheaval but only for a moment when we faced SARS, (severe acute respiratory syndrome) which was a viral respiratory disease that terrified the world for a time and severely interrupted travel. But we came through that okay with only a little short-term hurt.
And then of course there was the Global Financial Crisis which people feared would become another Great Depression.
If that wasn’t bad enough we faced a couple of years of COVID – a time of lockdowns and masks which cancelled major events around the world and when, in some parts of Australia, it even became illegal to have a holiday.
So the impact on tourism and the management and letting rights industry could have been terminal, but here we are on the other side of the pandemic and business has been better for many operators than before the pandemic struck because of all the pent-up demand.
Today there is uncertainty about what President Trump might do next and who might win the Federal election in Australia. Traditionally elections do put a handbrake on spending and it has had some impact on holiday letting and investment.
It’s not a direct correlation but things are tough out there.
Because of financial hardships in Australia, there are a lot of shops closing, a lot of bad news about retailers in particular.
Our industry had a very sluggish lead up to Easter and part of the reason for that was Cyclone Alfred. Some people hear about a cyclone in North Queensland and ring up to cancel their bookings on the Gold Coast.
Or they hear about Alfred and cancel their holiday to Cairns.
That’s just the way some people are.
Uncertainty is not good for business.
It doesn’t really matter where Trump lands with these tariffs. The fact that he’s playing around with them like it’s a game dissuades investment.
The management and letting rights industry is not immune to economic uncertainties or the unpredictability of major weather events, but it stands up to whatever gets thrown at us in a wonderful way.
Providing you get the fundamentals right, management and letting rights is a profoundly resilient business that has withstood the test of time and it gets through these disturbances.
Ours is a business model that is the envy of the world. There are very few businesses in the world that offer such a high return on investment while also offering the investor a beautiful place to live and without the worries of many other endeavours.
Consider the fundamentals of the business model that make the MLR industry so resilient.
The economics work when you have a dedication to onsite delivery of service.
And that’s what the business of management rights really is. It’s delivering service – letting services and caretaking services on-site and dedicated to that scheme.
And it doesn’t mean that if you live there, you’ll be successful if you don’t live there, you’ll fail.
It’s just the concept of dedicating both the letting and the facility management or caretaking by one entity dedicated to that one site.
The corporate model is that they might have 161 sites or 161 buildings, but each of their management teams is dedicated to that one building,
It’s not like a property manager in a real estate company that might have a property portfolio of 400 lettings looked after by Brittany, who’s driving a clapped out 1985 Laser while looking at her GPS trying to find where the properties are. Or the carpark cowboys – the offsite letting agents – who have little to do with a property except hand out keys to guests in the carpark when they arrive.
We know where our properties are. We know the investor-owners, we know the tenants, and we check in the guy whose booked his stay.
It’s these fundamental principles of onsite letting management, onsite holiday management, or onsite real estate management coupled with onsite maintenance of grounds and everything else, that makes management rights such a resilient business, particularly during uncertain times.
If you do all your due diligence and you use specialist lawyers, accountants and financiers when you are looking to buy into an MLR business, and then if all the numbers stack up, management rights is a very sound investment.
MLR businesses provide a great return on investment, a very good income, and they generally give you a wonderful place to live in very a good environment that you manage.
When I was a residential manager my logic for buying MLR was that I was in control of the business. There were certain advantages that the MLR business delivered that were unique.
I was an ex-retailer, and in MLR I didn’t have to carry stock, whereas someone with their own retail store might have a couple of hundred thousand dollars’ worth of stock on their shelves.
If you buy a fast food business you will have thousands of dollars’ worth of perishable stock that you have to sell quickly before it goes bad. In food businesses there are endless, but necessary, health and safety concerns and stringent cleaning requirements that can do your head in.
From a staffing point of view, many MLR operators need very few staff.
I engaged an outside contractor to do my cleaning, I did a lot of the maintenance myself, and then put a guy on to do some mowing and whatever.
I only had one or two staff and a contract cleaner.
Compare that to retail or most other businesses where you usually need a lot more staff than that.
In many MLR properties a husband and wife team can often run the place quite efficiently themselves and control the business quite well.
And while you might occasionally meet a whinger or a guest who plays up, in the tourism business most people on holidays are in a good mood and pleasant to deal with.
The best managers realise they are in a service industry and that by doing the best job they can they are enhancing the community they live in. Whether that community is a community of holiday guests or long-term residents or owner occupiers, it doesn’t matter. You’re enhancing a community when you have a dedicated approach to that scheme with all of the operational services, that the scheme requires.
When you link that all together with good positive communication, and you understand the importance of the triangle of management –– bingo.
There’s the secret to success.
And the secret to a business that for so many operators has been a solid gold investment during times of major upheaval and uncertainty.