THE DIFFERENCES BETWEEN PROPERTY MANAGEMENT AND ASSET MANAGEMENT

Many real estate investors want nothing to do with the daily responsibilities that go along with managing their investment properties. On top of that, most investors don’t have the time or expertise to manage the property and figure out how to maximize their returns.

As a result, investors often engage with a third-party team to manage their real estate assets. Hiring a management team is becoming a growing trend among real estate investors, and for good reason. Leveraging the skills and experience of a real estate management company offers several benefits for investors.

However, there is a big difference when it comes to property management versus asset management. With property managers assuming more of the operations as of late, their roles have become less and less clear.

The line between property management and asset management isn’t as black and white as it once was. Investors should be aware of the differences before choosing one over the other.

PROPERTY VS. ASSET MANAGEMENT

Property Management

Property management focuses on the daily operations of managing a property. This is someone who acts on behalf of the property owner and helps to maintain the property’s value. You’ll find property management firms of all kinds, ranging from small boutique firms to global corporations.

Property management includes several routine tasks:

  • Rent collection
  • Maintenance and repairs
  • Tenant relations
  • Lease administration
  • Enforcing rules and regulations

As real estate markets get more competitive, property managers have seen their roles evolve. Many property managers are no longer just collecting rent and fixing the property.

Their responsibilities have grown to encompass more financial analysis of the property. Often times, they will prepare annual budgets for the property owner and make recommendations to improve the property’s income earning potential.

Property managers are taking on additional roles, too. They are increasingly thinking and acting like asset managers, which drives the overall confusion between the two.

Asset Management

Asset management is solely concerned with the returns. This is someone who works to maximize the earning potential and value of each property. They focus on strategy to make operations more efficient and streamlined. Their objective is to lower costs and increase income.

Real estate investors can be individuals, private companies, public corporations, or even governments. Real estate asset managers mitigate investment risk on behalf of investors and make recommendations to improve the property’s value.

Asset management includes several tasks:

  • Cash flow analysis / financial forecasts / internal rates of return
  • Due diligence for property purchases or sales
  • Identify ways to increase the property’s value (i.e. renovations)
  • Refinancing deals for the property
  • Hiring or firing property managers
  • Navigate the legal and tax rules for the property

Real estate asset managers usually specialize in a certain niche in the real estate market: certain types of property, specific regions, or certain methods of operation. They are the go-to party for market research and data analysis for real estate markets.

WHICH IS RIGHT FOR YOU?

Property and asset managers each have some value to offer your real estate investments, but there are key differences to be aware of when exploring your options.

Before engaging with a manager or management company, real estate investors should consider a few questions to make sure they have the right partner.

  • Are the daily operations and management of the property my primary concern?
  • Are maximizing income and selling the property my primary concerns?
  • Do I want a third-party to manage the property and develop the strategy for maximum returns?

If you want someone else to do all the dirty work of collecting rent, doing regular maintenance, and engaging with the tenants then property management is right for you.

If you want to incorporate the best strategies for maximizing income and property appreciation then an asset management program is right for you.

Most managers in real estate will market themselves as a property manager or an asset manager. With the lines between the two professions becoming more and more blurred, the best managers will have expertise in both areas.

REAL ESTATE SYNDICATION

When thinking about hiring a management team, investors are really looking to take a hands-off approach to some degree. They either want someone to help with the daily operations or the overall strategy. Often times it’s both.

That’s where real estate syndication comes into play.

We’ve previously discussed how real estate syndication can deliver a lot of value for investors.

With real estate syndication, investors contribute the capital required to purchase and operate the property. The sponsor (usually a real estate investing or management company) does the rest — they act on behalf of the investors to identify and purchase properties, manage the operations, and determine the overall strategy for the best returns.

In other words, a good sponsor in a real estate syndication will usually be able to perform many of the tasks done by property and asset managers. If you find the right sponsor, it can be the best of both worlds.

If you’re looking to become a passive investor in the real estate market, consider real estate syndications. They offer a good way to achieve that hands-off approach.