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Property Management vs Asset Management

Is there a difference asks John Ward

Property Management and Asset Management are seen as two different areas of the property sector. To understand why this is, let’s firstly define what the current thinking is on both these areas.

Property Management concentrates on the day-to-day operations of a property and maintains the value of a property. Property management includes, but is not limited to:

  • Maintenance of the property and facilities
  • Collecting rent and other charges
  • Working with staff and contractors
  • Dealing with resident, tenant and guest issues
  • Enforcing rules, regulations, covenants, guidelines
  • Risk management

Asset Management is centred on financial matters; maximizing the return on investment and value of the property. They are adept at streamlining operations and repositioning a property to reduce costs and increase income.

Asset Managers understand real estate as an investment. Asset Management includes tasks such as:

  • Prepare long term financial forecasts and perform cash flow analysis and compute internal rate of return in order to determine a property’s financial performance.
  • Perform due diligence for acquisition or disposition of property and provide recommendations.
  • Determine value of a property and what can be done to increase the value.
  • Find and work with lenders.
  • Negotiate on behalf of the owner
  • Market an asset to increase revenue.

The reality is there are many aspects of Property Management and Asset Management which are one in the same.  Whilst Asset Management has always tended to be associated with commercial properties and assisting clients to review the rent and maximise the income, this practice can also be adopted by Property Management for blocks of apartments.

The asset which needs to be managed is the block itself. Whilst the block does not bring in any revenue, the asset which does increase in value are the apartments within the block.

If the block is not well maintained then this will have an effect on the resale price of the apartments as well as the rental values. As the apartment is an asset for the owners it is imperative to understand the impact the look of the building has on these two revenue streams. Without this view point and understanding the Property Manager could have a detrimental effect to the client’s potential revenue.

In order to keep the building well maintained the Property Manager needs to ensure good financial management of the funds received for the maintenance issues. These finances are needed for the following reasons;

  • Cyclical maintenance
  • Emergency repairs
  • Building insurance
  • Major works
  • Reserve fund

Good financial management comes from being adept in creating budgets and cash flows as well as undertaking quarterly financial reviews. These areas of expertise are common practice of both Property and Asset Managers.

Having healthy finances of a building is also going to have an impact on the price of the apartment.

Once a price of an apartment has been agreed upon this offer may change or contingency maybe requested by the purchaser if the reserve fund is found to be low and major works are due in the coming years.

No purchaser wishes to be found with a large interim service charge invoice, or increased service charge to increase the reserve fund to cover these works. This will again have an effect on resale value. If a contingency is requested then this will be taken off the offer from the prospective buyer.

The property manager of the block has a responsibility to ensure the block is maintained on a day to day basis but they are also responsible for the future of the block and to strategize future works.

These strategies will involve sitting down with the client as well as liaising with outside professional services such as surveyors and contractors, to draw up a long term plan for the healthy financial future and structurally sound building.

These expertises are part of what a Property Manager is expected to demonstrate and whilst these skills are normally attributed to Asset Managers it is clear the line between the two is not as clear as it was once and the terms of what Property Management & Asset Management is needs to be defined for the modern era.

John Ward is a Director at Insight Property Consultancy, which has a vast experience within the property sector and has the skill sets which covers a number of different disciplines within the industry.