REAL ESTATE ASSET MANAGEMENT VS PROPERTY MANAGEMENT
Do you know the difference between real estate asset management and property management? What’s more, do you know the difference in benefits that you get from each? The following is a scenario that is all too familiar with people who invest in single-family homes.
You are preparing for a major presentation to your division head first thing tomorrow morning. As usual, you have too much to do and too little time to do it. Your phone suddenly rings and you notice on the Caller ID that it’s your wife. Like you, she also has a tough, long work schedule, so if she’s calling, you know it’s important. “Hi darling, everything alright,” you ask. “It’s the property manager, again,” she says seemingly upset, and adds “he needs you to call him as soon as possible.”
The last time the property manager asked that I call him as soon as possible, it was a malfunctioning water heater on your rental property. Letting him deal with that problem independently cost you $500 more than it should have, wiping out the positive cash flow on the rental property. “I don’t have time to deal with this right now,” you tell her, exasperatedly. “Neither do I,” she barks back. “Ok hun, I’ll deal with it, bye,” you say, and hang up. “Great, just great”, you grumble, as you look at your watch, it’s going to be another late night at the office.
SINGLE-FAMILY INVESTMENTS • WHAT YOU NEED TO KNOW BEFORE YOU INVEST
Has a scenario similar to this ever happened to you? If you own a single-family property but have another full-time job, then I’m sure that this resonates with you. Fortunately, there is a method of earning passive income that is more efficient and less painful: multifamily syndications.
First, in a multifamily investment scenario, there is always a syndication manager or real estate asset manager. These investments have structures that inherently take most of the research, worry, and work out of investing in real estate. Conversely, in a single-family home investment, you have the option of a property management firm to oversee your rental property.
If this piques your interest, you are invited to continue reading to learn what you need to know about the difference between property management for single-family home investments and real estate asset management for multifamily investments.
When you invest in a single-family home to develop a passive income, you’ll find many obstacles to a good return on your investment. We’ve listed a few below and we recommend that you continue doing your research before making any final decisions. When you have questions, be sure to contact me right away because I am available to help you.
FINANCIAL ISSUES
First, there is the point of no positive cash flow because of circumstances that arise that require you to spend more money on top of what you’ve already invested. They might include an unprofessional management company that either over-charges or takes on more work than they can handle.
Additionally, with a single-family home, when your tenants leave, it might sit empty for 2 months or more. This could be due to a lack of effort on the part of your property managers that entails end-of-tenancy cleaning and preparation of the property for showing to the next tenants.
Another important point to consider is that property managers have little incentive to subcontract out to competent vendors. Instead, they often go with the lowest price possible which usually won’t include the outcome you desire. The same goes for replacing or repairing appliances or HVAC systems.
Unfortunately for single-family investments you also get to deal with the scenario of a tenant not paying and not moving out. In most states, a non-paying tenant might be able to stay in your house for up to six months. Of course, that also means a significant payout for legal fees.
TIME ISSUES
Let’s face it. It’s hard to build a passive income through investments in single-family homes. First, the income you get from your investment is not really “passive”. Rather, it involves a great deal of work on your part.
It’s up to you to contact the property manager to check on the progress of your properties. In fact, you manage the property managers. They are often quite difficult to get ahold of because it’s to their advantage to take on more work than they can handle.
Moreover, finding the deal for investment purposes is a lengthy process and investing in single-family homes is hyper-competitive. This becomes especially burdensome when you only invest in one home at a time. Simply stated, it’s a slow boat to China for investors to see a healthy ROI. If you’re also working at a full-time job, then it’s going to even harder to do all the work necessary to reach your financial goals.
LOCATION ISSUES
If you live in an area where housing prices are high, it’s harder to invest 30% or higher to purchase a single-family house. You may also need to move to another location which makes it difficult to invest in your area at the time. In addition, for investors living or working overseas, management of a single-family investment is difficult to impossible.
Also, in most areas, tenant laws are burdensome and favor tenants. If you live in New York, California, or other states with rent control laws, it’s even more difficult for owners of single-family investments.
MULTIFAMILY SYNDICATIONS ARE A MORE PASSIVE INVESTMENT
SYNDICATORS PERFORM ASSET MANAGEMENT
With multifamily syndications, there is a designated syndication asset manager who does most of the work for you. Here are a few of the duties that your syndication manager will perform for you:
- Performs the initial market research to find the best properties for the investors.
- Researches and obtains the best financing options available for the syndication investors.
- Performs market research on the property every 6-12 months.
- Identifies and implements ways to add value to the property.
- Selects the right time to sell the property for maximum return to their investors.
However, there is a lot more that goes into what a designated syndication real estate asset manager does for you.
To learn about more ways that real estate asset managers make your investments truly passive, click here.
