Real estate asset management is particularly important to apartment owners. However, many people don’t even know what it is. Of course they know about property management. Those are the people who manage the day-to-day operations of a property.
But what is an asset manager?
In short, real estate asset management is the person or entity that hires and fires the property manager. They’re the boss. They create the business plan, capital improvement plan, budgets, make the buy and sale decisions, and supervise the property manager.
If you actively own real estate, then you’re the asset manager. As such, you may decide to hire a property manager or you may choose to take on the property management duties yourself.
Larger private real estate acquisitions and asset managers will often hire out the property management to well respected regional and national firms. There are many good reasons to do that, but never forget that you’re the boss. So it’s important to work closely with the property manager and hold their feet to the fire.
What follows are ten real estate asset management best practices that you can implement for optimal results and profits.
1. Know Your Market And Submarket
The vast majority of your future residents already live within a five-mile radius of your property. For that reason, you better know what your competition is doing.
By shopping your competition, you’ll know what units rent for in that market. You’ll also know what amenities and upgrades justify higher rents. This is called a rent survey.
Armed with that information, you should be able to craft a capital improvement plan that is impactful. It will allow you to deploy dollars where they matter most so that you can raise rents and force appreciation.
2. Never Fall In Love With Your Property
Too many people get emotionally attached to their investment properties. Pride of ownership consumes them and that can cloud their judgment. This can lead to foolish upgrades that aren’t strategic or warranted.
Needless upgrades that don’t drive rent increases can lead to over-improving a property. If nobody in your market has granite counter tops and your tenant base is already stretched thin at the current rent, it’s not wise to add them. As nice as they are, you won’t be able to raise rents.
Instead, you want to focus on upgrades that will pay you back quickly. Smart real estate asset management knows how to receive multiple dollars in return for every dollar they spend in improvements.
They’re not guessing or hoping either. Instead, they’ve done their rent survey and they know exactly how to get the biggest bang for the buck in rent increases and appreciation.
3. Don’t Ignore Your Property
The other side of the coin from falling in love with your property is ignoring it. It never ceases to amaze me how some investors buy a property and think it will somehow magically take care of itself.
They don’t respond promptly to repair requests and they don’t inject capital to improve the property. This is called deferred maintenance and it leads to a decline in the overall appeal of the property.
In general, desirable residents gravitate to desirable properties. Like most people, they want a clean, safe place to live in a price range that they can afford.
If you allow your property to deteriorate, your tenant base will also deteriorate. If you’re not careful, it can become a race to the bottom.
Run down properties attract tenants of last choice. These are people with histories of eviction, undesirable background checks, and bad credit. Crime tends to rise in these types of properties making it even harder to find new renters.
Real estate asset management people that defer maintenance can find themselves in the unenviable position of not being able to collect rents, raise rents, increase the value of the property, or worse. That’s not where you want to be. So don’t ignore your property.
4. Know Your Resident Base
As an investing owner of a property, your goal is to make more money. Most people think the only way to do that is to raise rents. While raising rents can accomplish your goal, there are actually three broad categories you should scrutinize.
- Increasing Revenues
- Decreasing Expenses
- Increasing Renter Retention
Accomplishing any one of these three can help you make more money.
Take renter retention for example. Turnover in apartments is just a fact of life. However, when someone leaves, it’s typical that his or her unit goes vacant for a period of time. Every day a unit remains unrented is lost revenue you can’t recover.
Therefore, retaining good renters should be a top priority of yours. To accomplish that, you want them to feel more like a resident and less like a tenant. What do I mean by that?
Retention is higher when someone feels like they are a valued part of a community. So it’s important that the property manager is available and responsive to them. Be sure to handle repair requests in a timely manner. Be courteous and respectful.
Host community events, renewal parties, and advocate for them by negotiating special deals with local restaurants and retail centers. Valuing your residents creates a sense of belonging and a sense of community. If you do this right, people aren’t going to want to leave.
5. Negotiate Significant Expenses
Real estate asset management and owning apartments is a business. And just like any business, there are significant expenses. But depending on the number of units you own, you may have buying power.
There are economies of scale that come with multiple units. Outside vendors love doing business with larger buyers. It’s great for their bottom line. So it’s common for them to discount their goods and services to keep you happy. They know that losing your business could seriously impact their bottom line.
Bulk buying can lead to significant discounts in appliances and other maintenance services. Contracts for utilities like phone, trash, electricity and maintenance supplies can often be negotiated lower. Shopping around your expenses can lead to significant savings and more money in your pocket. Don’t ever hesitate to ask for a lower price.
6. Hold Cash Reserves
Smart real estate asset management teams hold significant cash reserves. They know that apartment investing is a living, breathing, business. As such, unexpected things happen.
That’s why, it’s important to have cash on hand to deal with the unforeseen.
We typically hold capital improvement reserves for planned improvements, rainy day reserves for emergencies, and six months of debt service reserves. Those real estate asset management teams that are lean on cash have very limited options when something happens out of the blue.
7. Drive Additional Income
While rent is the main driver of income, it’s not the only one. Smart real estate asset management teams know they can drive additional income with application fees, pet rent, reserved parking, smooth move programs, ratio utility billing system, just to name a few.
There is a whole host of ways to drive additional income. Just be sure that whatever you institute is usual and standard in your market and is providing value to the resident.
8. Always Protest Property Tax Increases
Municipalities love to increase property taxes. It’s how they increase their revenues. However, these increases can really hit the bottom line of a real estate asset management team.
When that happens, it’s important to protect your investment by protesting that tax increase. There are many reputable firms that will do that for you. Typically, they don’t get paid unless they win the case.
That grants you protection should you lose. If you win the case, there are fees you’ll need to pay. However, these are just a fraction of what you’ll save. So it’s well worth the time and money you’ll spend to keep your property taxes as low as possible.
9. Consider Preventative Maintenance Programs
HVAC, boilers, and other high cost, major mechanical items wear out over time. When they do, there is significant cost in replacing them. Preventative maintenance programs can be instituted that will extend the life of these items.
As the saying goes, “an ounce of prevention is worth a pound of cure.” The longer you can keep these items in good working order the better it is for your bottom line. Just don’t forget to negotiate down the expense of a preventative maintenance program as previously discussed.
10. Require Renters Insurance
While many renters don’t believe they need renters insurance, it’s a good idea to require it. Renters insurance covers the resident’s belongings should they become stolen or damaged.
And while that’s a good idea, you really should require them to carry renters liability insurance as well. This protects your investment should the renter do something that causes significant damage to the property.
While a comprehensive list of damages that a renter could cause is beyond the scope of this article, kitchen fires, flooding, and a whole host of other damages are more common that you might think. And while the owners insurance will cover those damages, they typically come with a premium increase. Having renters carry their own liability insurance offers owners significant protection.
Real Estate Asset Management Conclusion
Owning apartments can come with material financial advantages. However, active investors need to be aware of the responsibilities they shoulder as well. This list of ten real estate asset management best practices can help you achieve your goals and maximize your profits.
For those investors who would rather stay passive, it’s important to find a trusted asset manager. Since 2008, 37th Parallel Properties has filled that roll for countless passive real estate investors. With a 100% profitable track record it’s easy to see why so many people trust the 37th Parallel advantage.
We just might be a good fit for you too. If you’d like to learn more, check out the following article: