A Comprehensive Guide to Real Estate Asset Management

Real estate asset management is a vital component for success in the real estate industry. While many investors handle asset management themselves, larger entities and experienced investors often enlist the help of asset managers to...

Real estate asset management is a vital component for success in the real estate industry. While many investors handle asset management themselves, larger entities and experienced investors often enlist the help of asset managers to handle their investment portfolios. But what exactly is real estate asset management, and what do asset managers do? In this guide, we'll explore the ins and outs of real estate asset management and shed light on the crucial role it plays.

What is Real Estate Asset Management?

Real estate asset management involves maximizing a property's value and return on investment. But how does one go about achieving this?

There are four primary areas of focus in real estate asset management:

  1. Finding the Highest/Most Consistent Revenue Sources: It's important to seek properties that provide a steady stream of revenue. Investing in rental properties is an effective way to achieve this.

  2. Reducing Expenditures: Operational costs, maintenance, closing costs, and taxes can eat into profits. Implementing strategies to reduce costs, such as choosing best-value contractors or securing loans with good rates, is crucial.

  3. Risk Management: All investments come with a degree of risk. Mitigating risk and preparing for contingencies are important aspects of real estate asset management.

  4. Portfolio Building: Diversifying and expanding your real estate investment portfolio is paramount for long-term success.

It's worth noting that real estate asset management differs from property management, which we'll discuss later.

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Using Real Estate as an Investment Asset

Real estate investment properties come in various types, including residential, commercial, mixed-use, and vacation rentals. Investing in real estate is similar to investing in stocks or bonds, with the aim of selling for a higher price in the future. However, real estate investments require more time, effort, and patience compared to standard securities.

Real estate investors can pursue short-term profits through opportunities like rental properties or fix-and-flips. In such cases, real estate asset management focuses on reducing costs and increasing rental profits. For long-term profits, investors look for properties that will appreciate in value. Here, asset management emphasizes making upgrades to enhance property value. Market research and risk management are essential skills for both short-term and long-term investment strategies.

What Does a Real Estate Asset Manager Do?

A real estate asset manager is responsible for managing real estate assets on behalf of clients. Their clients can range from individuals to private companies, corporations, and even governments. Asset managers handle various types of investment properties, including residential, commercial, mixed-use, and vacation rentals.

The typical duties of a real estate asset manager include:

  1. Cash Flow Management: The asset manager aids investors in improving cash flow from their properties by finding ways to cut costs and create more profitable rental agreements.

  2. Finding Lenders: Asset managers assist investors in securing financing for property purchases or improvements.

  3. Property Transactions: They guide investors through the intricacies of buying or selling properties.

  4. Negotiating Property Agreements and Leases: Asset managers craft appealing leases for tenants while ensuring profitability for the property owner.

  5. Asset Marketing: Advertising properties for sale or rent is part of an asset manager's role. They create listings or find suitable realtors or property management companies.

  6. Improving Property Values: Asset managers identify ways to upgrade properties to boost their value and returns, particularly for fix-and-flip investors.

  7. Conducting Market Research: Asset managers are experts in market research, helping investors make informed decisions and locate profitable real estate markets.

  8. Making Financial Projections: By analyzing real estate investment data, asset managers can predict revenue potential from existing or prospective properties.

  9. Developing a Budget: Asset managers create budgets for expenses and future investments.

  10. Developing/Revising a Financial Strategy: They work with investors to develop strategies aligned with their financial goals.

Real estate asset managers possess comprehensive knowledge of the industry, and their role can be financially rewarding. In 2019, the average salary for a real estate asset manager was over $77,000 per year, according to Indeed.com.

Real Estate Asset Management Goals

The primary goal of real estate asset management is to maximize overall investment returns. This is achieved through pursuing high returns, reducing expenditures, managing risk, and building a diverse portfolio. These tactics often result in increased property value, rental rates, or other forms of return. Asset managers excel at property analysis, deal making, negotiations, and more. Their aim is to enhance portfolio performance through these strategic avenues.

How an Asset Manager Chooses Investments

Asset managers typically choose investments based on their specific areas of expertise. They may specialize in a particular region or locality and focus on specific property types such as retail, office, industrial, or residential properties. Such specialization enables asset managers to quickly and efficiently evaluate investment opportunities.

Diversification is still valued in portfolios, and asset managers possess expertise in real estate analysis fundamentals. They carefully select a mix of commercial or residential properties and identify the best markets to invest in.

In larger real estate management firms, asset managers may work with acquisition specialists to choose the best investments. These specialists provide a comprehensive overview of potential investment value and help asset managers make well-informed decisions.

Real Estate Portfolio Management

One of the key responsibilities of a real estate asset manager is helping investors build a diverse portfolio of investment properties. A diverse portfolio offers short-term and long-term profit potential and provides protection in case one revenue stream falters. The asset manager suggests properties for investment and allocates revenue streams from existing properties to finance new purchases.

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The Difference Between Asset Management and Property Management

It's important to distinguish between real estate asset management and property management. While an asset manager handles the overall financial strategy of an investment property, a property manager focuses on daily operations. Property managers collect rent, deal with tenants, manage maintenance issues, and ensure the property's upkeep.

The asset manager drafts rental agreements, while the property manager finds suitable tenants. Asset managers focus on profitability, using market knowledge to increase returns for property owners. There may be some overlap in responsibilities depending on the client's needs, but the asset manager primarily focuses on the business side, while the property manager handles day-to-day operations.

In cases where investors own multiple rental properties, it may be necessary to hire both an asset manager and a property manager, as the asset manager may not have the time to oversee each property individually.

Summary

Real estate asset management is a crucial process for maximizing property value and returns. It is a necessary skill set for professional real estate investors and can also be a rewarding career. Asset managers oversee investment portfolios, devise strategies to enhance long-term value and profitability, and assist in property transactions. They play a different role from property managers, who handle the daily operations of rental properties.

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