Landlord (s)
Published 03.01.2020., 12:00 PM
Real Estate Asset Management vs Property Management: What to Know
[Jeff Rohde]
Written by Jeff Rohde
Hiring a real estate asset manager is a natural step for rental property investors as their property portfolio grows. Oftentimes, however, investors confuse property management with real estate asset management and wonder whether there’s really a need for two different professionals.
The fact is that property and asset managers play two very different roles, and the most successful investors find there is a need for both services. Rental property investors who use a real estate asset manager can realize higher profits and stronger portfolio growth.
Let’s take a look at how having a real estate asset manager can help an investor scale-up and grow a single-family rental property portfolio.
Why Do Rental Property Investors Need an Asset Manager?
As real estate prices keep rising and the competition for good rental property increases, the demand for professional asset managers who can maximize yields and market values for investors keeps growing.
A real estate asset manager monitors the market, keeps his finger on the pulse of the latest real estate trends and research, and stays abreast of macroeconomic, political, and financial trends. By doing this, an asset manager helps an investor’s portfolio to grow and ensures each rental property meets and exceeds its fair market value while mitigating any potential risks.
The best real estate asset managers also go above and beyond the hard data by understanding the subjective nuances of each client. That’s because each investor is unique, and to one degree or another base investment goals and objectives on background, family situations and work histories, health, financial and knowledge resources, and desires.
At the end of the day, a professional real estate asset manager can provide a priceless perspective to rental property investors who may be too busy with a 9 – 5 jobs to fully appreciate and capture the profit potential of each asset in the portfolio.
Real Estate Asset Management vs. Property Management
A property manager focuses on the day-to-day operations of a rental property while an asset manager is concerned with the long-term, bigger financial picture. With one or two rental properties, an investor can get away with just a professional property manager.
However, as rental property investors scale up their real estate portfolio, it becomes increasingly important to include a real estate asset manager as a key part of the team.
Here’s a quick look at the differences between property management and real estate asset management:
Property Management
Property managers deal with the routine, daily activities of managing rental properties.
Key tasks and responsibilities of a property manager include finding and keeping great tenants, executing leases and enforcing the terms and conditions, collecting rents, paying vendors, maintaining the property, and providing monthly and year-end financial reports to the owner.
Asset Management
Asset managers focus on the longer-term, strategic big picture of maximizing the value of each rental property and realizing the highest return on investment (ROI) for the owner.
Key tasks and responsibilities of an asset manager include creating an overall strategy for each rental property and the entire real estate portfolio, improving asset value by wisely reducing expenses and increasing income, hiring and overseeing the property manager; and preparing, monitoring, and adjusting property financial projections and financing strategies.
Core Responsibilities of a Real Estate Asset Manager
Real estate asset managers usually specialize in distinct asset types such as single-family rental property, certain geographic regions of the country, and specific investment strategies like long-term buy-and-hold.
The overarching goal of a real estate asset manager is to achieve the highest possible property value and return on investment for each asset and for the overall portfolio of the owner.
Asset managers for real estate accomplish this by strategically reducing expenses, maximizing rental income streams, and reducing potential risks and liabilities for the rental property investor.
Core responsibilities and goals of a real estate asset manager include:
Advising the investor on how to best structure the capital stack of debt and equity, and direct ownership vs. joint ventures or partnerships
Assisting the owner in choosing the best investment strategy, a form of ownership and investment, and potential pros and cons of each approach
Selecting and overseeing the KPIs (key performance indicators) that define the investor’s return and key asset controls
Hiring and working with key members of the investor’s team including real estate agents, property managers, and leasing agents
Generating, reviewing, and reporting property and portfolio financial performance and recommending any needed adjustments to achieve the investor’s long-term goals
Managing cash flow from the individual property and the overall investment portfolio
Directly working with ownership investment partners and lenders to determine the most effective use of leverage
Allocating capital and investment resources across the entire rental property portfolio to complete capital improvements and add value
Determining the holding period of each property by understanding the life cycle of each rental property through acquisition, holding, and eventual disposition
Three Phases of Real Estate Investment Management
Throughout all three phases of real estate asset management – acquisition, holding, and disposition – the asset manager uses a well-balanced blend of experience and instinct with market knowledge to help owners improve investment performance.
Factors considered through each of the three phases of the real estate asset management cycle include available capital and the cost of financing, forecasted market activity such as demand and rent projections, and the opportunity to add value or reposition a rental property.
Acquisition
Real estate asset managers provide investors with consistent, reliable advice on the best time to invest in single-family rental property in specific geographic markets.
For example, transaction prices may be rising so fast in some markets that fair market rents may not be high enough to cover debt service and normal operating expenses. Other markets, such as Memphis and Orlando, may offer better opportunities for the rental property investor due to long-term fundamental factors such as population and job growth combined with a lower cost of living.
Additional criteria that real estate asset managers use to analyze the timing of potential property acquisitions include:
Interest rates and the cost of capital
Projected market rent rate movements, absorption, and vacancy forecasts
Opportunity to add value and increase existing income streams
Market-specific cap rate and yield trends
Stage of the real estate market cycle
Hold
Throughout the holding period, the real estate asset manager oversees the daily activity of the property manager while constantly monitoring asset performance with an eye on increasing income.
During this period of holding and owning, the asset manager communicates regularly with ownership to measure the financial performance of each rental property against the expectations of the investor and investment strategy goals:
Short-term strategy requires a fast return of capital invested through rapid property appreciation over a shortened holding period long-term strategy focuses on steady cash flow and improved returns through consistent income and market value appreciation over the longer term
Regardless of the specific investment strategy, a real estate asset manager will constantly monitor the market to weigh the benefit of selling today versus continuing to hold.
Disposition
Real estate asset managers consider a number of factors when deciding when, how, and even if to sell a rental property.
For example, the asset manager may believe that cap rates have bottomed out – or become so low – in a specific market due to unprecedented demand from other buyers that the capital gain realized by selling generates cash that can be better used for other real estate investments.
On the other hand, low cap rates created by a temporary supply shortage in a market with the new products under construction may also be a sign that the time has come to sell. That’s because as new supply becomes available, markets often see vacancies rise and rents temporarily decline due to an increase in the property for tenants to choose from.
Other reasons for disposing of a specific rental property include:
Future net cash flow is expected to decrease due to the need for upcoming capital improvements such as a new roof or HVAC system
Unrealized equity has accrued to such a high level that the investor may be able to sell, conduct a 1031 tax-deferred exchange, and invest in a diversified portfolio of single-family rental property that is already cash flowing with qualified tenants
Interest rates are expected to rise due to growing trade wars, political conflicts, or macroeconomic trends that may make cash-out refinancing more difficult and potentially more expensive
Final Thoughts
Rental property investors hire real estate asset managers to maximize the value of each property and the total portfolio and to generate the highest possible returns. Real estate asset managers guide investors through the three stages of acquisition, managing and holding, and disposition.
The main goals and objectives of real estate asset management include:
Focusing on the long-term financial performance and ownership investment objectives
Hiring and overseeing a property manager to handle daily activities such as rent collection, lease enforcement, and routine repairs and maintenance
Advising on the best way to structure debt and equity, managing cash flows, and working with key partners and members of the real estate investor’s team
Understanding each stage of the real estate market life cycle and how to invest in each market phase
Published 03.12.2020., 12:00 PM
5 Ways to Fill a Vacant Unit ASAP
Have you been struggling to fill a vacancy for what feels like forever? How can you figure out what’s preventing you from finding the perfect tenant? Here are five "to-dos"—and one major "don't do."
Double-check your rent. Check out comparable units in your town to make sure that sticker shock isn’t scaring away potential tenants. Which makes the most financial sense for you—lowering your rent a little bit to make your rental more attractive, or letting an empty unit sit on the market for another month or two?
Improve your ad. Is your headline enticing? Are the photos appealing? Do you address basic questions about the unit’s amenities, location, and availability? Is your contact information easy to find? Is the listing posted on all of the major sites?
Bring the unit up-to-date. Would the unit be more appealing with a cosmetic change or two? If new paint, carpeting, or appliances will bring in new tenants ASAP, it may be worth the upfront cost.
Consider allowing pets. Many tenants can only consider units that will let them bring their cat or dog along. If you’re wary of potential damage, update your lease agreement to make sure you’re covered.
Ask other residents for referrals. Birds of a feather flock together—so ask your favorite tenants whether they know anyone looking for a place to live, and offer a referral bonus in return.
Don't lower your standards. By loosening your requirements for residents, you’re increasing the probability that a bad tenant will slip through your screening process. In the end, it’s better to wait one more month to find the perfect person than to end up with someone who skips out on rent or damages the unit.
Lastly, consider hiring a property manager who has the time and expertise to fill vacancies with ease. With the right property manager in place, you won’t just find great tenants faster—you may also find that they stick around longer, too. Just click the button below to find one in your area.
Published 03.15.2020., 12:00 PM
10 Reasons to Hire a Property Manager
If you've owned income property for any length of time, you know that managing a rental can be financially rewarding. At the same time, you've also likely discovered that property management requires a large commitment of time and effort.
While it may make sense to take the do-it-yourself approach if you're a handy person, live close to your property, and don't mind devoting several hours per month to the task, in many cases this just isn't practical---especially if you hope to expand your business. With this in mind, here are some critical tasks a property manager can help you with:
Setting the right rental rates: While looking through the classifieds to see what other landlords are charging for similar properties is a fine way to ballpark your rent price, a good property management company will conduct a thorough market study in order to set a rental price for your property, ensuring that you achieve the perfect balance between maximizing monthly income and maintaining a low vacancy rate.
Collecting and depositing monthly rent payments on time: If you've ever worked in a billing department, you know that securing payment from clients can be difficult, not to mention awkward. Property management companies have efficient, tried-and-true systems in place to effectively collect rent and maintain on-time payments. You'll find this particularly important if you have a limited number of properties, and collecting payments on time is crucial to maintaining your cash flow.
Marketing and advertising your property: Through long experience, a property manager will know exactly where to market your property and how to craft compelling advertising materials---a significant advantage when it comes to filling your properties quickly and avoiding long vacancies.
Finding the right tenants: Experienced property managers are experts at finding good tenants, and will take care of all the details, including the securing all criminal background and security checks, running credit reports, verifying employment, and collecting previous landlord references.
Managing tenants: In addition to finding good tenants, a property management company will manage all aspects of the tenant-landlord relationship. The property manager will handle both routine and emergency maintenance, take care of routine inspections, and manage any situations where conflict resolution is required.
Managing vendor relationships: Property management companies have relationships with maintenance workers, tradesmen, contractors, suppliers, and vendors that it's almost impossible for an independent landlord to duplicate. Not only will your property manager get you the best work for the best price, they'll oversee any necessary maintenance projects.
Ensuring that you're in compliance with housing regulations and property laws: There is a multitude of applicable laws and regulations to abide by when renting and maintaining your rental property. These include local, state and federal regulations, as well as fair housing regulations (such as the ADA). A property manager can help you avoid lawsuits by keeping your property up-to-date and in compliance with these regulations.
Enabling you to invest in geographically distant properties: If you manage your own properties, you're pretty much limited to investment opportunities within a tight radius of your own home. By hiring a property manager, you can take advantage of investment deals in any location you wish.
Maximizing the profitability of your time: By having a property manager take care of the day-to-day aspects of running your income property, your free to spend your time identifying further investment opportunities or otherwise furthering your career.
Maximizing the profitability of your money: Most property managers charge a percentage of your property's monthly rental rate in exchange for their services. The rate typically runs anywhere from 6-10%, which is generally less than the money you save by hiring a professional to take care of your property.
Published 03.31.2020., 12:00 PM
Forced Appreciation
When most investors start out, they run a few numbers and come up with an acceptable price, condition and location for an investment property. All of us do this. The next step is to set up an internet search that emails you when these properties come available. Piece of cake. Now all you have to do is just sit back and wait for good deals to come your way, right?
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Wrong. The problem with armchair investing is that everyone else is doing the same thing. We all use the same numbers, come to the same conclusions and have access to the same software to do searches. In general, if it’s easy, more people will do it, which increases competition and drives down profitability.
Related: Why Forced Appreciation Makes Multi Family Investing Better, Hands Down.
Think about this in terms of jobs. Everyone is looking for that high paying job that doesn’t require much work. How likely are you find it? “Does it even exist?” is the more important question. A lot of the properties people want as investments also don’t exist.
Here’s why waiting for good deals to come your way is a bad idea: When you list a house for sale, realtors can look at how many people viewed the property online and how many saved it to their favorites. I can tell you from experience as a realtor that you will usually get thousands of views and emails sent out the first day a property hits the market.
If that property really is a good deal, everyone knows. Typically, investors following this strategy will rush over there and put in a bid the first day, hoping to beat everyone else. Guess what? Everyone else is doing this too. Sellers realize pretty quickly what’s happening and will wait until they get more bids before selling. It happens all the time. So how do you beat the competition? You learn to create good deals instead of waiting for them to come to you.
“Today I will do what others won’t, so tomorrow I can accomplish what others can’t.” – Jerry Rice
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Forced Appreciation
Forced appreciation is buying something that’s not a good investment and making it into a good investment. Arm chair investors are not looking for or bidding on these homes, which reduces competition and increases profitability. After giving you some of the ins and outs of this concept, I’ll end with a true story of friend of mine who only bought non-cash flow properties and made millions using forced appreciation.
Benefits of Forced Appreciation
Quick
Less competition
Increased cash flow and appreciation
Drawbacks of Forced Appreciation
Requires specialized knowledge
More time spent analyzing properties
Typically a one time benefit
Forced appreciation can be adding resale value and/or increasing rents on a property.
A Few Ways to Increase Rental Income Through Forced Appreciation
Create an additional room in a larger house
People are usually willing to pay more for a three bedroom than a two bedroom, even if square footage is similar.
Convert attic space to living space
Convert basements to extra living space
You can double the living square footage of some houses and significantly increase rents for the cost of carpet and drywall.
Convert garages into living space
People love garages, but renters will pay more for extra living space.
Build a mother-in-law unit or studio in the backyard to rent out. This can significantly increase cash flow because you already own the land.
Use Airbnb instead of simply renting to bring in more monthly income. Airbnb will show you how often a property has been rented so you can run an analysis.
A Few Ways to Increase Property Value Through Forced Appreciation
Add bathrooms
Most people are looking for more than one full bathroom now. It’s not always profitable, so see what people are willing to pay for in your area.
Add bedrooms
Properties are valued based on similar properties. Adding bedrooms can change the comparables and increase the price of the home. Drywall is cheap.
Add curb appeal
Most people rent and buy using emotion; first impressions matter.
Rehab a cheap duplex while living there and then increase rents. Multifamily properties are valued based on the income they generate. Not only will you increase rental income, but also property value.
Related: Investing for Cash Flow or Appreciation – What’s the Difference?
Learning what works in your area takes a lot of boring analysis. But once you figure it out, you’ll be able to easily repeat the process or move on to finding other ways to force appreciate properties. Very few people do this and miss out on great opportunities.
Here’s the story you’ve been waiting for. I know an investor who would almost exclusively buy large three bedroom homes that had no chance of cash flow. She would then create two more bedrooms (moving walls or converting garages) and one more bathroom within the house. At an average price of $500 a room (college students) in our area, she was able to turn a break-even house into $1,000 a month cash flow with no competition. She has been buying at least one home a year for over 20 years just on the income from forced appreciation.
“If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.” – Albert Einstein
If you can master forced appreciation in your area, you will be your only competition. Every property will become a potential investment.
Investors: Have you forced appreciation in your properties?
Leave your stories and tips below!
By Brett Lee
Brett Lee is a licensed Real Estate Broker in Portland Oregon where he helps people achieve a better future so they can do the things that truly make them happy. Brett is also a buy-and-hold invest...
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