Asset Management requires an experienced manager to effectively optimize the operation, value, and returns of a real estate investment. They monitor key performance indicators that drive the achievement of that outcome. The asset manager is also responsible for oversight and management of the property manager. Here are three best practices for asset management success.
If you're not new to this space, you have probably already heard that property management is the most important piece of your team for managing and operating an asset. They are an extension of you (the owner of the investment), the first point of contact for your customers (tenants). As a wise man once said, “you can never make a new first impression.”
Be deliberate and take your time when hiring property management companies; they are very eager to obtain your business, but some tend to lose energy after securing the management agreement. Like any teammate, you should hold them accountable and don’t be afraid to terminate quickly. Always have expectations set up front and in writing before you sign the agreement, so that there is no confusion.
Complexity kills execution. Success in any business endeavor relies on the ability to create the most effective systems and processes. Whether you are new or experienced, you should have documented systems and processes (standard operating procedures) in place on how you plan to manage any asset, fundamentally with an understanding that there is a top layer with a special plan for that particular asset.
Invest in management systems like AppFolio, Rent Manager, Buildium, MRI, etc. Create a process for you and your property manager to handle open receivables & payables (ARs and APs), reports, evictions, vacancies, and weekly/monthly cadences. Have your bank accounts ready before acquisition. I recommend having separate accounts for operations, cap-ex, security deposits, escrows, and owner distributions (for investors).
In asset management, it is crucial that every property has a clear business plan to maximize income and lower expenses. There must be an understanding of the budget for each expense line item, with conservative revenue projections—a good property manager in a particular market can assist you with this. Your main goal is to execute the business plan and to drive performance and profitability of the asset, while understanding the strength of the market. At times this goal may require you to be savvy and think outside the box.
For example: You need to understand when and when not to be aggressive on rents with respect to the pulse of the market. Deeply analyze any operational inefficiencies, your tenant profile, and your business plan to effectively create a playbook to maximize revenue.
Asset management requires a high-level approach, as the manager has a 30,000-foot view of the operation, but should also be attentive to the minute details of the investment strategy. The asset manager is responsible for ensuring the business plan is executed to meet and exceed the goals of the investment. As the saying goes, “The jockey is more important than the horse!”
Author: Yannik Cudjoe-Virgil
Yannik formed Merlynn Acquisitions in 2017. He has experience in portfolio asset management, real estate investing, investment analysis and financial modeling.
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