Real Estate Investing vs. Property Management
June 8, 2020
Real estate investing can mean owning one single-family rental house, or hundreds of apartment complexes. It can be an extra source of revenue on top of a work salary or a full-time job and business. Whatever the scope of real estate investing, it should not be confused with property management.
Many rental real estate owners have no interest in being a landlord. The property is simply an investment for them. Those owners typically hire a property manager to handle the day-to-day operations. As their portfolio grows, they may also need the help of a real estate investment manager. These professionals handle the financial and strategic side of real estate investing. Real estate investing, property management, and real estate investment management serve three distinct functions.
Real Estate Investing or Investment Management?
When someone owns a property other than the home where they live, they are engaging in real estate investing. They are the owner and landlord of the house, apartment, or commercial space. They take on the financial risks and rewards that come along with that role.
An investor might start out with just one rental unit, planning to buy more in the future. As their portfolio of properties grows, the situation could change from a simple opportunity for some extra income to a full-fledged business. Real estate investment companies come in all sizes. It might consist of just one individual, or it might be a huge conglomerate traded on a stock exchange.
When real estate investing expands and becomes a business, the owner might need to hire a real estate investment manager. This person or company doesn’t own a stake in the properties themselves, but works for the owner to oversee their portfolio of properties. It is their job to create a strategy that will bring the owner the best return on their investment.
Someone with only a checking account wouldn’t need a financial manager or wealth manager, but someone with a portfolio of various stocks, bonds, mutual funds, and retirement accounts might. In the same way, an owner with only a few properties may not need an asset manager. One with multiple real estate assets will benefit from having an expert help them get the most from their investment.
What is Property Management?
Property management, on the other hand, is not only for real estate investing companies. Even a landlord with just one rental house may want to hire a property manager. A property manager’s job is to take care of the needs of the renters and maintain the building. The owner may live too far away, or not have the time, ability, or desire to do the work necessary. The more properties in a portfolio, the less likely it is that an owner can handle their management.
A reputable management company will always do what they can to protect the owner’s investment by finding reliable tenants, keeping the property in good shape, reducing expenses when possible, and sticking to a budget. It is important for owners to find one they can trust.
A typical full-service property management company would include these services:
- Find tenants. Property managers may take care of advertising and showing rental properties, screening applicants and doing background checks, and providing the necessary lease paperwork and tenant rules and regulations.
- Prepare rental units. Property management companies either employ or sub-contract various tradesmen to get rental units ready for new tenants. Carpenters, HVAC techs, painters, etc. will work to get apartments or houses ready to rent.
- Collect rent. Property managers are often responsible for rent collection and the associated accounting and banking. They will also typically handle late notices and start eviction proceedings if necessary.
- Handle maintenance requests. Tenants are usually instructed to contact the property manager during emergencies or when repairs are needed. As with preparing units for new tenants, the company will provide the appropriate worker to take care of the problem.
- Upkeep and maintenance. The property manager takes care of the exterior of the building as well as any public spaces such as a pool, laundry room, hallways, or workout space. They will mow grass, shovel snow, and sweep on a regular basis.
What Does a Real Estate Investment Manager Do?
While property management revolves around the renters and the physical space, a real estate investment manager’s main job is to strategize and give advice on how a real estate investor can strengthen their portfolio and increase revenue. Some of the services they provide are:
- Monitor the real estate market. Real estate asset managers will watch for trends in the market and make suggestions about properties to buy and sell. They may keep an eye out for specific types of dwellings that will fit into the strategy for the portfolio. For example, one portfolio may stick to only single-family homes, while another might benefit branching out to acquire an apartment building.
- Work with lenders. Through their relationships with various lenders, the real estate investment manager will work to secure financing on the owners’ behalf. They will shop for favorable interest rates and do the negotiating and administrative work.
- Negotiate leases and property agreements. They will draw up the appropriate legal documents to protect the interest of the owners.
- Maximize property value. They will help steer decisions toward what will maximize the value of the asset. For example, they may suggest repairs and improvements on one property versus another. Or they may advise adding amenities like a pool or workout room based on what renters are willing to pay more for in a certain area.
- Market the property. Many asset managers will work with a leasing team to market the rental in a way that is most appropriate in the region with a goal to reduce vacancies and increase revenue.
- Budgeting. The asset manager will be responsible for capital and operations budgets and a financial strategy that will minimize costs and maximize value. They will provide long-term financial projections and cash flow management.
- Hire a property management company. To further lighten the administrative load on the investor, the real estate asset manager might find and interact with a property management company for them.
Do You Need Real Estate Asset Management or Property Management?
There is some overlap in the services provided by a property management company and a real estate asset management company. Either one may take on marketing or budgeting tasks, but that’s where the comparison ends.
Real estate asset managers focus on the big picture. They are like the generals in a war room, mapping out an overall strategy to meet the goals of the real estate investor. Property managers are the boots on the ground. They are on-site, carrying out the orders to take care of whatever needs to get done.
Not everyone involved in real estate investing needs a real estate investment manager. But anyone with more than a few properties should consider a property management company. In the St. Louis area, Select Leasing & Management has years of experience helping landlords shorten their property management to-do lists .
Cover image by sl-f by Canva.com
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