When it comes to real estate asset management, it can be difficult to discern if you're looking for actual asset management versus property management. They may sound similar, but they provide very different services to investors in need. Learn the difference between asset management and property management, and get a better idea of which may be the right solution for you based on your real estate portfolio.
What is asset management?
Asset management refers to management of a real estate portfolio, which can include a wide range of real estate or real estate investments. It still refers to some day-to-day management of real estate investments but also encompasses management of the portfolio as a whole, looking for potential risks and vulnerabilities or opportunities for increased revenues or growth. An asset manager can manage residential rental properties, commercial property, mortgage loans, real estate stocks, real estate investment trusts (REITs), crowdfunding investments, and beyond.
For this reason, asset managers' daily tasks or management will look different depending on the real estate portfolio they're managing. Ultimately, their job is to ensure the real estate portfolio and individual investments inside the portfolio are being executed as efficiently, optimally, and cost-effectively as possible.
Who asset management is right for
Asset management is usually used in commercial real estate or by investors with large real estate portfolios. If you're having trouble managing your real estate portfolio and feel you're missing opportunities for growth or minimizing costs, or you're simply seeking advice on how to improve your portfolio's performance, you can hire a third-party asset management team or asset manager, who will review and assess your portfolio as a whole.
An asset manager will analyze your portfolio's current performance, look at data metrics, and create a strategy and plan for optimizing yields while reducing risk exposure. The asset manager can determine if each asset is running optimally or if there's opportunity for rent increases, reducing unnecessary expenses, and debt reallocation or restructuring while providing proper valuations for each asset in the given real estate market. This management goes beyond daily property management tasks, looking at the investment in the portfolio from a bird's-eye view.
Cost for asset management
Most asset managers work on salary and take a role within the company rather than working in a third-party capacity. Their salary range depends on their experience and qualifications, but investors can expect to pay anywhere from $70,000 to $100,000 or more. This is one reason asset management is usually a job role in the private or institutional marketspace among private equity firms, hedge funds, or REITs -- they have the scale and portfolio size to make the cost worth the service.
Some companies offer asset management on behalf of investors for a fee. The cost for these types of services will vary depending on the firm, the number of assets under management, and the management services provided.
What is property management?
Property management refers to the management of a rental property, which can be handled by an individual property manager, property management company, or by the property owner. While many landlords take on the task of managing a rental real estate themselves, it can be outsourced to a third-party property management company or property manager for a fee. The manager then takes over the daily tasks relating to the rental property, which may entail:
Who property management is right for
Property management is ideal for landlords who are struggling with or don't want to handle the day-to-day management of a vacation rental, commercial property, or long-term residential rental. Many landlords choose to manage their rental properties themselves, as they feel no one will do it better than them, but there are benefits to outsourcing, such as improved systems, additional rent collection options, and reduced time spent actively working in your real estate business.
Cost for property management
Property management companies charge a monthly management fee, which can vary by company and market, but for most, it's a percentage (8% to 12%) of the total rent. The company or manager may also charge additional fees for leasing, evictions, or other additional services. Hiring an on-site property will add to your overall expense, as there's the added cost of on-site employees.
How to find a property manager or asset manager
If you're on the hunt for your next property manager or asset manager, a great place to start is asking for recommendations from fellow real estate investors or real estate professionals. Reach out to your network and see if your financial advisor, attorney, or colleague can recommend someone.
You can also search for asset management companies or property managers in your local market. Finding someone with specialized knowledge of your real estate market is key. If you're looking for an asset manager, make sure they have experience in your specific investment class. For example, if your investments are in industrial real estate, you ideally want to find someone with extensive experience in that asset class, not something unrelated, like multifamily real estate.
The Millionacres bottom line
It's not uncommon, particularly for large real estate investors or real estate companies, to utilize both property management and asset management. REITs, for example, will have an on-site property management team that handles operations for the particular rental property, but on the higher end, the entire portfolio will be managed by a team of asset managers. This way, the daily operations of the property are being handled properly, and the portfolio is being optimized for maximum returns and profitability.
If you're a small investor, it's far more likely you'll want to utilize property management services before you consider hiring an asset manager, but it all depends on your needs. Both provide essential services for the operation and profitability of the investment and portfolio, but in different ways.
Always do your homework on the company and its experience, and ask other investors for referrals. Not every asset manager or property manager is considered equal.