As a real estate investor, owning and managing a few properties might be hard to handle. Thus, hiring a real estate investment management company might be the way to go.
First of all, you might be wondering what real estate investment management is, when you should use it, what the types of investment management are, and how you decide on which type to go with. Continue reading for answers to your real estate questions related to investment management.
First: What is investment management in real estate?
Investment management in the case of real estate refers to the process of professionally managing a property. It also means making sure that the property is well maintained and is put to its best use. This could be in terms of finances, facilities, administration, or all of these aspects together for the sole purpose of maximizing profits and benefits. It is done by professional managers who run assets, do marketing, prepare reports for their clients, and deal with tenants. These are only some of the tasks that might be difficult for investors to handle individually. Of course, it all depends on the type of investment management you, as an investor, choose for your real estate business.
Second: When should you hire investment management services?
Now, whether you are an individual investor (a private investor) or an institutional investor (a government, an educational institution, or an insurance company), you definitely need investment management services. Even though you, as a real estate investor, can manage your property alone, getting professional help is a must, particularly, if you have a few investment properties, and it gets hard to handle all of them. So you, and for the sake of your investment business, need to hire an investment management service when:
- You either have various rental properties, but don’t have the time or expertise to manage them.
- Or you have a rental property for the sole purpose of making money.
- Or you might be taking part in affordable housing programs and need someone with professional knowledge to manage your assets.
Third: What are the types of investment management?
There are two types of investment management in real estate: property management and asset management. Although they might sound similar, they are two completely different professions.
Property management has to do with the day-to-day property operations. In other words, the areas of responsibility in property management are the following:
- Marketing and finances: The investment manager is required to prepare and submit regular financial reports to the owner. This, of course, requires knowledge of budgeting and operating expenses. Property management helps set rental rates that cover all different expenses. The investment manager might also advertise and promote the rental property.
- Occupancy and tenants: This includes making sure to achieve good occupancy rate. For this purpose, property management services include: responding to tenants’ requests and complaints, making sure tenants are not violating the lease requirements, collecting rent on time as well as eviction, when needed, of course. This task particularly needs professionals in order to achieve the aims of the property.
- Facility: Managing facilities is also a part of the investment manager’s areas of responsibility. Maintaining outdoor facilities and keeping good connections with maintenance companies is essential in order to maximize the renting out and the profits of the property. Facilities include the parking lot, the roof, the playground – everything that is attached to the property and is shared by the tenants.
- Administration and risk management: In fact, it includes finances as well. Part of this task is keeping official reports and documentation that are required by the authorities, especially, reports needed for taxes and accounting. This means that every action that is related to the property must be recorded and kept for a specific period of time set by the relevant authorities. In addition to administration, risk management is a huge part of a property manager’s responsibilities. This aspect requires keeping up to date with the real estate market and every other factor that might affect the real estate investment business. Therefore, and as we mentioned before, property managers are professionals that only work to meet the goals you set for your investment business.
On the other hand, asset management focuses on the financial aspect of the investment property. It actually aims to maximize the return on investment for the property in addition to its value. Therefore, an asset manager’s tasks include the following:
- Preparing long term financial plans and forecasts.
- Managing the cash flow of the investment property.
- Minimizing costs while maximizing the return on investment for the property.
- Making decisions on how to increase the value of the investment property.
- Engaging in negotiations with other parties.
- Providing recommendations to the real estate investor.
- Finding high sources of revenue.
- Providing financial analysis.
- Preparing lease agreements with good conditions in order to attract tenants.
- Providing the investor with monthly, quarterly, and annual reports on the investment property.
Of course, these are only some of the tasks that asset managers do, all in order to serve the investors’ best interest.
Finally, how to decide which type of investment management to go with?
When it comes to deciding whether to hire a property manager or an asset manager, real estate investors should ask themselves: What is it that I am most concerned about? In other words, if you’re concerned mostly about the day-to-day property operations, then property management is the answer for you. This means handling rent collections, maintaining the rental property and its facilities, dealing with eviction, and other tasks related to the property itself and the tenants. However, if you are most interested in maximizing your return on investment along with the property value, and after a while selling the property for more than what you have paid for it, then consider hiring an asset management company, which is absolutely the best option for you. After all, it all depends on what your goals are, and what you feel most comfortable with. Either type of investment management serves your best interest.