Asset Management: The Silent Key to Multifamily Syndication Success
Investing in multifamily or apartment assets is one of the ways investors increase their net worth over time and generate income. Although multifamily or apartment assets can yield high returns, realizing high return rates calls for successfully managing these assets, which is a huge undertaking considering the number of units and number of people involved.
That’s where professional asset management comes in. An experienced asset manager can help a property owner optimize profits while minimizing risk.
Asset management is the process of monitoring property performance and timing capital improvements to maximize value and return on investment. By acting on behalf of their client, asset managers make strategic investment choices that can result in long term appreciation of the property value.
Here are some key functions of an asset manager:
Financial Management: They are responsible for overseeing the financial performance of the property. This includes budgeting, monitoring income and expenses, optimizing cash flow, and ensuring the financial health of the property.
Strategic Planning: The asset manager develops a strategic plan for the property that aligns with the overall goals of the syndication. This could include plans for renovations or upgrades to increase the property’s value, or strategies to improve occupancy and rents.
Operational Oversight: They oversee the day-to-day operations of the property, which can include everything from tenant relations to maintenance and repairs. They also manage relationships with property management companies, contractors, and other service providers.
Compliance: Ensuring compliance with all relevant laws and regulations is another key responsibility. This includes both property-specific regulations (like building codes) and financial regulations related to the syndication itself.
Reporting: Asset managers provide regular reports to the syndicate’s investors. These reports include financial updates, progress towards strategic goals, and any changes in the market or property conditions that could affect the investment.
Risk Management: They also perform risk management duties, which involves identifying, analyzing, and taking steps to reduce or control the risks that the property or investment may face.
Best practices for Asset Management
At Old Money Capital, we take asset management very seriously. Here are some of the best practices we follow:
1. Data Driven Decision Making
Effective asset management is based on solid, reliable data. This includes data on market conditions, financial performance, property condition, and tenant demographics. Asset managers should use this data to inform all their decisions, from strategic planning to day-to-day operations.
2. Proactive Maintenance and Capital Improvements
Regular maintenance can prevent costly repairs down the line, and capital improvements can increase the property’s value and attractiveness to tenants. Asset managers should plan for these expenses and incorporate them into the property’s budget.
3. Regular Communication with Investors
Investors appreciate regular updates on their investment. While in some companies this is an investor relations function, asset management needs to provide that information to the investor relations function. Asset managers should provide clear, concise reports on a regular basis, and be ready to answer any questions that investors may have.
4. Effective Budgeting
Effective budgeting requires a conservative mindset. Effective budget overestimates expenses and underestimates income. This forces an asset manager to save money wherever possible without sacrificing the long term goals of the property. At Old Money Capital, any expense budget lower than 40% of the income creates a red flag.
5. Risk Management Best Practices
While risk management involves purchasing the right insurance, there are a many small things that can avoid many potential risks. Adding appropriate signage, installing functioning or fake cameras, installing security lights and fixing things on time can avoid most of the big risks.
6. Partnering with Quality Service Providers
It’s crucial to work with experienced, reputable service providers, such as property management companies, contractors, and legal advisors. These partners can help ensure that the property is well-maintained, compliant with all relevant regulations, and financially successful. We don’t necessarily choose the cheapest provider, we try to choose the best service provider. Finding and choosing a contractor involves a lot of due diligence.
Remember, every property and investment strategy is unique, so these best practices may need to be adapted to fit the specific circumstances of your multifamily syndication. But in addition to all of these, we follow a fundamental rule that is more important than any of the other:
Visit, Visit and Visit!
We require our asset managers to visit the property themselves! In the beginning three to six months, they are required to visit the property every month to understand the idiosyncrasies of the property. After the initial learning phase is over, the asset manager visits the property at least once in a quarter.
Differences between Asset Management and Property Management
Although used interchangeably, there are significant differences between the two. Well, at least in the real estate asset management industry.
An asset manager is responsible for the general financial well-being of an investment portfolio, call it macro-management. The property manager, on the other hand, handles the property’s financial day-to-day operations (micro-management).
An asset manager’s primary duties consist of formulating an overarching plan for the portfolio and individual property, implementing that plan by prudently decreasing costs and increasing revenue, and hiring and supervising the property manager. In addition, they are responsible for developing, reviewing, and making necessary changes to property financial forecasts and financing strategies.
Conversely, a property manager’s primary duties include tenant acquisition and retention, lease execution and enforcement, rent collection, vendor payment and management, and preparing monthly and annual financial reports. For more in-depth comparison, you can read this article.
The role of the asset manager in multifamily syndications, while often underestimated, is crucial. They navigate the complexities of property and financial management, strategic planning, investor communication, and legal compliance. Effective asset managers apply data-driven decision-making, proactive property maintenance, and robust risk management, directly impacting the investment’s success. Their expertise drives the performance of the property, making them an indispensable asset to any syndication. This underscores the importance of this often underrated role in ensuring profitability and success of the investment.