Let’s take a look at the importance of asset management in real estate. Every real estate investor has the same basic goal: earn as much profit as possible for as long as possible. The obvious formula for profitable real estate investment is for a property to yield more revenue than expense. For rental properties, this means that the monthly rent paid by tenants must add up to more than all of the building’s expenses such as property taxes, maintenance, and utility bills. For properties that are being bought and sold, this means that when selling a property the seller must make back however much they originally purchased the property for, plus any losses incurred on things like maintenance and renovations while they owned it. Everything that happens between the times a property is sold is what determines whether or not it will result in profit for the seller.
Asset management is meant to develop market value so ownership can increase its returns. Asset management does not get nearly the attention as the transactional side of real estate, but it is of vital importance. Properly managing assets is what leads to transactions being profitable.
Two important characteristics required of effective asset managers are the ability to be proactive and attention to detail. Being proactive rather than reactive allows managers to get ahead of potential problems before they become exacerbated. One proactive measure landlords can take is mixing up the lengths and ending dates of their tenant’s leases. This guarantees that even in the unlikely worst case scenario where not a single tenant chooses to re-up their lease, the landlord will not be tasked with filling up each unit at the exact same time. Turnover is the most expensive part of renting out properties, so reducing the number of empty units at any specific time is a big money saver.
Regarding attention to detail, it is important to recognize the difference between rent-related problems and other nuanced issues that could be fixed without a price change. If a certain unit is experiencing a high turnover rate, a good asset manager will try to figure out why that is happening to see if there is a way to fix it without reducing the rent. Maybe tenants of the unit haven’t liked living there because there is consistently heavy foot traffic outside their door. Could something be done to change that? Maybe the unit is right next to the mail area. Could that area be relocated? If so, then by doing so the building’s owner will be saving the money that they would have lost if the rent were reduced.
There is an enormous amount of behind the scenes work that goes into successful real estate deals. Asset management is a giant part of that.