As you grow your business, you will likely find yourself needing an extra hand to handle the multitude of tasks that come with being a landlord. You could partner with a property manager to help out or even have your tenant manage the property, but both courses of action have downsides. Hiring a third-party real estate management company can reduce your burden, providing a hassle-free approach to passive income. However, it’s not without limitations, as we shall learn in this article.
What is real estate asset management?
Real estate asset management is an arrangement in which you allow an external company to manage your properties.
Real estate management applies to any type of rental property, including commercial real estate and residential rental units.
There are about four focus areas in real estate asset management
Returns
It’s always preferred to find properties likely to enjoy significant increases in value. However, their ability to provide consistent profit is more important, than large one-off profits. Effective asset managers acquire properties that offer the highest possible returns.
Reducing costs
Properties can require significant maintenance fees when you combine closing costs, operational costs, maintenance, and taxes. Asset managers can address this by hiring contractors who provide quality service at low rates or secure loans with reasonable rates.
Risk management
All types of investments are subject to a certain amount of risk. That includes real estate. Your asset manager will help you to mitigate risks and create contingencies if an investment fails.
Portfolio management
Real estate asset management is all about carefully diversifying and expanding your real estate investment portfolio.
Real estate asset management vs. property management: what’s the difference?
A property manager is responsible for the day-to-day operations of a rental property. On the other hand, an asset manager focuses on achieving long-term financial goals. You might get by with just a professional property manager if you only have a property or two. However, as your real estate portfolio grows, so will your need for an effective real estate asset manager.
Here’s a brief look at the critical differences between real estate asset management and property management
Property management
Property managers handle routine activities required to keep rental properties fully functional. their essential duties will usually involve
- Finding and retaining good tenants.
- Implementing leases enforcing the accompanying terms and conditions.
- Collecting rent
- Property maintenance
- Paying vendors/service providers
- Writing monthly or annual reports to the owners.
Asset management
Asset managers deal with long-term, strategic objectives. They aim to maximize individual rental property values and provide the highest returns on investment for the owners.
An asset manager is usually responsible for the following;
- Developing a general strategy for each rental property and the entire real-estate portfolio.
- Growing asset value by carefully limiting expenses and increasing income.
- Hiring and supervising property managers.
- Monitoring, preparing, and calibrating financial projections.
The asset management process.
Your real estate manager will rely on their experience and market knowledge to improve your investment performance throughout all three phases of the real estate management process.
Acquisition
Your asset manager will provide consistent, reliable advice on the best times to acquire properties in specific geographic markets. To do this, they’ll look at indicators such as;
- Interest rates and capital costs.
- Market rent rate movement projections and forecasts on vacancy and absorption.
- Opportunities to enhance the value of your portfolio and expand your income streams.
Holding
Your real estate manager will oversee the day-to-day activities of your property manager(s). They will also continuously monitor asset performance and research strategies to increase income.
During this period, your manager will provide regular updates on the financial performance of each rental property and review them against your investment goals. Irrespective of the specific investment strategy used, your real estate manager will continuously observe the market. This will enable them to compare the benefit of selling against continuing to hold.
Disposition
Real estate asset managers consider several factors when determining when, how, or if they should sell an asset. For instance, your manager may believe the cap rates have gone so low in a specific market due to unexpected demand from other buyers that the capital gains attained from a sale would best be invested in acquiring additional properties.
When should you hire a real estate management company?
You might be the kind of investor who’s fully committed to your business, and you don’t mind the day-to-day obligations of running multiple properties. In that case, a management company may not be suitable for you. Even if you can afford the cost. In contrast, you likely need a management company if you have a day job, own several properties, and consider them a passive income investment.
How much does it cost to hire a real estate management company?
The cost of real estate management will vary by location and the number of units you own. However, generally speaking, you can expect your fee to be between 5% and 10% of the rent obtained from your properties. In most cases, you’ll be charged less the more units you own.
Hiring a real estate manager is a crucial investment decision. If you’ve decided to commit, ensure you hire a management firm with a proven track record.
This would also be the ideal time to consult your mentor if you have one. You may find that you can do most of the things a real estate management firm would do for you on your own. In fact, we have several property management courses that address this sort of situation.
