Buying an investment property comes with an added responsibility to the property owner to maintain and manage it. This may need a lot of effort and time on a consistent basis.
As real estate investors invest in multiple rental properties, their real estate investment portfolios may grow. If they can’t manage it on their own, they may need to engage a third party to help them manage their investment. However, many real estate investors don’t know which professional to hire. Should they turn to real estate asset management or property management?
When managing rental properties, it is important to know the difference between the two. Real estate asset management and property management are two very different professions. You ought to understand what they actually do before you decide to hire someone who you can entrust your investment. Hiring the wrong person can cost you a lot of money in lost property value and cash flow. It is definitely a mistake you need to avoid.
Related: Reasons You Don’t Need Professional Property Management
Real Estate Asset Management
Real estate asset management refers to the process of maximizing the value and return on investment of a property. This includes finding the highest and most consistent sources of revenue, reducing expenditures whenever possible and risk management, among other things.
The real estate asset manager acts as an owner of the investment property and looks out for the property owner’s best interests. They are proficient in repositioning a property and streamlining operations to reduce expenses, increase income and improve property value. They are responsible for the creation and implementation of the general strategy of the asset. Keeping track of company assets is an important task that can help to save the real estate business’ money and time.
Real estate asset managers usually deal with strategic and important issues related to a property. They understand real estate as an investment. Real estate asset management needs strategic thought and execution so as to actively enhance the value and cash flow of the assets. To hire a qualified real estate asset manager, an investor will be required to pay real estate asset management fees.
Real estate asset management includes tasks such as:
- Finding lenders and working with them
- Negotiating property agreements and leases on behalf of the property owner
- Providing due diligence for the purchase or disposition of property
- Determining the value of the property and ways to increase its value
- Marketing an asset for revenue growth
- Working with the leasing team to absorb any vacant space on a timely basis
- Preparing long-term financial projections
- Cash flow management
- Market research
- Data analysis
- Hiring and overseeing the property manager
- Developing capital and operating expenditure budgets
- Evaluating, monitoring, and revising property financing strategy
Market research? Cash flow management? Property valuation? If you’re a beginner looking for an investment property, this tool can help with all of these tasks and more.
Property Management
Property management, unlike real estate asset management, only focuses on overseeing the daily operations of the property. A property manager helps to keep things running smoothly and maintain the value of a property. To do this effectively, they will need to work closely with the tenants of the property. The roles of a property manager are usually centered on oversights and making sure that certain tasks are done, and that the property is up and running. It involves the systems, processes, and manpower needed to manage the life cycle of the property, including procurement, accountability, control, responsibility, utilization, maintenance, and disposition.
Property owners may hire property management firms because of a number of reasons. Some property owners may possess several rental properties in their portfolios but don’t have the expertise or time to maintain the rental properties and handle the tenants. Some property owners are only interested in owning rental properties and making profits from them. In such cases, they employ professional property managers. Property management services are also needed by absentee landlords.
Related: When Should Real Estate Investors Hire Professional Property Management?
An owner of a single-family or multi-family rental can appoint a property management company after paying property management fees. These fees may be a certain percentage of the rental income generated by the rental property while under management.
The property management company will then market the rental property, handle any inquiries by tenants, screen all applicants, pick the right candidates, draft a lease agreement, perform a move-in inspection, usher in the new tenants into the investment property and collect monthly rental income. The property management company will also coordinate any issues regarding property maintenance, supply the property owner with financial statements and any appropriate information concerning the property.
Related: Professional Property Management: Pros and Cons
Here is a list of the main tasks performed by a property manager:
- Drafting lease agreements
- Collection of rent and other charges
- Attending to the maintenance requests of clients
- Paying the ordinary operating costs of the property
- Enforcing property rules and regulations
- Servicing eviction notices in case of non-payment
- Financial reporting
- Risk management
The Bottom Line
Rental property management is critical to the success of owning a rental property. Real estate asset management usually focuses on the financial matters of a full-on rental property business. However, real estate management and property management have changed over the years and continue to evolve. Even though they involve different responsibilities, many real estate businesses have one or the other. There are some businesses with no real estate asset managers but their property managers do some of the tasks instead. As a result, real estate asset management and property management disciples have had a greater alignment than ever before.
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