Real estate asset management is essential to be successful in the real estate industry. Most real estate investors do at least a minimal amount of asset management themselves, but larger entities and experienced investors may enlist an asset manager to handle their investment portfolios. Essentially, real estate asset management is both a skill set and a career.
What exactly is real estate asset management, and what does a real estate asset manager do? Here’s a comprehensive guide.
What is Real Estate Asset Management?
Real estate asset management is the process of maximizing a property’s value and return on investment. But how exactly does one do that?
Generally, there are four areas of focus in real estate asset management:
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Finding the Highest/Most Consistent Revenue Sources: It’s always nice to find a property that’s likely to increase significantly in value. But consistent profit is just as important—if not more important—than a large lump sum profit. Good real estate investors seek out properties that provide the highest possible stream of revenue. One way to do this effectively is by investing in rental properties.
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Reducing Expenditures: A property can cost quite a bit of money to maintain when you consider operational costs, maintenance, closing costs, and taxes. Luckily, there are a variety of ways to reduce the cost of investment properties. For example, you can choose best-value contractors for fix-and-flips or secure loans with good rates.
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Risk Management: There’s an element of risk in all types of investing. But some investment properties are riskier than others. Mitigating risk or preparing contingencies in case an investment fails are critical components of real estate asset management.
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Portfolio Building: Ideally, the more you invest, the more you’ll profit. Real estate asset management is all about strategically expanding and diversifying your real estate investment portfolio.
It’s important to note that there’s a major difference between real estate asset management and property management. We’ll touch on that later.
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Using Real Estate as an Investment Asset
There are several different types of investment properties, including:
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Residential
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Commercial
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Mixed-use
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Vacation rental
An investment property is really not so different than a stock or bond. You buy at a certain price with the expectation that you can sell for a higher price in the future.
However, real estate is a more complicated type of investment than your standard security. Real estate typically requires more time, effort, and patience.
For example, when you buy a stock, there’s little work you have to do after the initial purchase. Sure, you might watch the stock market and decide when it’s time to buy or sell, or maybe you’ll even participate in shareholder voting. But your stock’s value probably won’t be affected by lousy tenants, vacancies, or poor market growth. The real estate market has many nuances that, if improperly managed, can detract from the investor’s profits or even cause a loss of profit.
Investors who buy stocks or bonds seek either short-term profits—through dividends or penny stocking, or long-term profits—through appreciation and sale. There’s a similar dynamic in real estate investing.
Real estate investors seeking short-term profits might look for opportunities to buy rental properties or fix-and-flips. Real estate asset management would focus more heavily on reducing operational costs and increasing rental profits in this instance. Keep in mind that “short-term” is always relative when it comes to real estate.
Real estate investors seeking long-term profits might look for opportunities to buy properties that will significantly appreciate in value after a few or more years. In this instance, real estate management would place special emphasis on making upgrades to improve property value.
Both investment strategies require skills in market research and risk management.
What Does a Real Estate Asset Manager Do?
A real estate asset manager is someone who manages real estate assets for a client. Charles Weinraub, CEO at Handsome Homebuyer, says that “a real estate asset manager is the captain of any good real estate investment company. He or she is responsible for identifying hot real estate markets, trends, and taking advantage of those arbitrages while there is money to be made”. Clients who may need the services of a real estate asset manager can vary from:
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Individuals
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Private companies
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Corporations
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Governments
The asset manager may be hired to handle all types of investment properties, including residential, commercial, mixed-use, and vacation rental properties.
A real estate asset manager typically has the following duties:
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Cash Flow Management: Many real estate investors try to earn a steady cash flow so they can finance their investments, pay off their mortgages, or boost their monthly earnings. Usually, the cash flow is generated by rent payments from residential or commercial tenants. The asset manager assists the investor in improving the cash flow from their properties by finding areas to cut costs or by creating more profitable rental agreements.
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Find Lenders: An investor may need to secure financing to purchase or improve a property. The asset manager helps the investor find a suitable lender or loan.
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Assist in Property Transactions: An asset manager may assist the investor with all the nuances that come with the purchase or sale of a property.
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Assist in Property Transactions: An asset manager may assist the investor with all the nuances that come with the purchase or sale of a property.
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Negotiate Property Agreements and Leases: The real estate asset manager may draft property agreements and leases for the owner. It’s up to the asset manager to craft leases that are appealing for tenants, but which are also profitable to the property owner.
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Asset Marketing: The asset manager may be tasked with advertising a property that the owner is selling or renting. The asset manager would create listings or find a suitable realtor or property management company.
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Improve Property Values: Any property value can be improved! An asset manager will determine ways in which a commercial or residential property may be upgraded to boost its value and returns. This is a critical task for real estate asset managers who are working for fix-and-flip investors.
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Conduct Market Research: A real estate asset manager needs to be an expert in doing market research. The asset manager carefully studies market trends to help the investor make good investment decisions. He or she will help the investor locate good real estate markets in which to invest.
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Make Financial Projections: Analyzing the data on all the property owner’s real estate investments, the asset manager will predict how much revenue the investor will earn on his or her properties, or on prospective properties the investor is looking to buy.
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Develop a Budget: The real estate asset manager will develop a budget for expenses and future investments.
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Develop/Revise a Financial Strategy The real estate asset manager will develop a strategy to achieve whichever financial goals the investor desires.
As you can probably tell, a real estate asset manager has comprehensive knowledge of the real estate industry. Real estate asset management can also be a lucrative career. According to Indeed.com, the average 2019 salary for a real estate asset manager was over $77,000 per year.
Real Estate Asset Management Goals
The main goal of real estate asset management is to maximize overall investment returns. This objective is accomplished through several key tactics: pursuing high returns, reducing expenditures, managing risk, and building the portfolio. With real estate in mind, many of these tactics result in an increased property value, rental rate, or other form of return. Asset managers are typically skilled at property analysis, deal making, negotiations and more. In essence, asset management seeks to increase the performance of an investment portfolio through these avenues.
How An Asset Manager Chooses Investments
Asset managers often choose investments based on their specific area of expertise. Many asset managers specialize in a specific region or locality. Managers also focus on certain property types such as retail, office, industrial, or single-family and multifamily residential properties. The purpose of these specialization is to help asset managers decide which investments to take on quickly and efficiently.
That being said, asset managers still value a certain degree of diversification in portfolios. These professionals are often experts at the fundamentals of real estate analysis. These skills allow them to choose the best mix of commercial or residential properties, and the best markets to get involved in.
In larger real estate management firms, asset managers are more formally divided into certain specialities. In these cases, asset managers are typically able to work with an acquisition specialist when choosing investments. Specialists are more qualified to analyze investment types and can provide an asset manager with a more comprehensive overview of the potential investment value.
Real Estate Portfolio Management
A real estate asset manager helps the investor build a diverse portfolio of investment properties. An investor can benefit from a diverse portfolio in a couple of ways. First, a diverse portfolio can help an investor earn both short-term and long-term profits. Second, a diverse portfolio protects the investor in case one of their revenue streams falters.
The asset manager will suggest properties to invest in and allocate revenue streams from the investor’s other properties to finance new purchases.
The Difference Between Asset Management and Property Management
There’s a difference between a real estate asset manager and a property manager. The asset manager handles the overall financial strategy for an investment property. The property manager handles the daily operations of a rental property. They’ll typically handle such tasks as:
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Collecting rent from tenants
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Dealing with unruly tenants
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Enlisting contractors to fix maintenance problems
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Ensuring the property is kept in good condition
While a real estate manager drafts the terms of rental agreements, the property manager finds tenants who agree and want to sign a lease. While the asset manager chooses upgrades that will increase the property’s value, the property manager will call in the plumber when the toilet gets clogged.
Leonard Ang, CEO of iPropertyManagement, says one way to think of it is that an asset manager is more focused on profitability. According to Ang, “an asset manager is an expert on market value to give the ownership a better chance of increasing their returns.”
There may be some overlap in responsibilities. For instance, a property manager might be tasked with marketing a vacant property instead of the asset manager. These day-to-day responsibilities will depend on the client. However, for the most part, the asset manager is focused more on the business side while the property manager deals with operations.
In some cases, it might be necessary for an investor to hire both an asset manager and a property manager, especially if the investor has many rental properties. An asset manager might not have the time to keep tabs on each of the properties.
Summary
Real estate asset management is the process by which you maximize a property’s value and returns. Asset management is a necessary skill set for any professional real estate investor, but it may also be a good career. Investors often hire asset managers to oversee their portfolio of properties and devise strategies to boost their long-term value and profitability. An asset manager is a different role than a property manager. While the asset manager handles investment-related tasks, a property manager handles the daily operations of a rental property.
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