Property management and asset management are among the most noticed and some of the biggest contributors to success in real estate. Like property management, asset management can most commonly refer to the same subject matter, but such responsibilities and issues are associated with two distinct and independent management approaches that have different foci, responsibilities, and goals. Property management and asset management are terms that property owners, real estate investors, and real estate professionals must distinguish and understand because they each carry important aspects of real estate management.
On other hand, asset management sites mainly the strategic, long-term financial performance of an asset or portfolio of assets to maximize returns for the client professionally by utilizing market analysis, investment strategy, and portfolio strategy, while other relates more to bottom-line office functions, such as property and tenant issues, tenant satisfaction, state of the overall physical condition of the property, and management of the daily operation of the property.
This blog will delve into the most significant distinction between asset management and property management.
Top 4 Ways Asset Management Differ from Property Management
For most people, both can be considered synonymous terms when discussing real estate, but asset management and property management represent two different functions with different emphases, aims, and responsibilities. If you are a real estate investor or property owner, or just want to know the different functions in the real estate, understanding how asset management is different than property management is a helpful place to start to understand how each function corresponds to value impact on the property or portfolio.
Here, we outline the differences between asset management and property management in this writing so don’t go anywhere and keep reading below.
1. Focus and Scope
- Property Management:
Property management is operational, dealing daily with the property manager’s performance of upkeep, leasing, and tenant relationships at a specific physical property. The Property managers are primarily worried about the transaction of tenants taking up residence in the buildings. Property managers are focused on possessing use of the property in good repair, the tenants share common goals.
- Asset Management:
Asset Management is broader and more strategic. Asset managers are responsible for maximizing the value of property or properties systematically over time. An asset manager is not focused on the operations of individual properties, but on the overall net financial performance of the real estate asset. An asset manager may typically be focused on regional or a limited portfolio of properties. It influences each property, so asset managers will establish optimal performance of each asset when they consider each other’s properties in their portfolio.
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2. Financial Strategy
- Asset Management:
The objective of asset management’s financial strategy is to create long-term value, whereas property management aims for short-term cash flow (income generation). An asset is a component of asset management in that it is an investment. The asset manager is the individual or organization responsible for planning the finances and strategically positioning the property. This may also include financing the property acquisition, determining if improvements or upgrades impact the value of the property, and evaluating market conditions to decide when it is considered to sell or lease the asset.
- Property Management:
Property managers can be seen as the operating or functional property management team of the asset managers’ property financial strategy. Property managers will operate within the financial plan set for them by the asset manager and should maximize how efficiently a property will function about income production. Efficient property management would mean managing rental revenues, vacancy rates, operating costs, and controlling the expenditure of property maintenance and property managers. For a property manager and whoever is on the functional property management team, the emphasis on the financial plan will be focused on cash flow, not the appreciation value.
3. Market Interaction
- Asset Management:
Asset managers tend to take a much higher, macro-level approach to the market. They may look for trends in the market, demographic shifts, zoning changes, and socio-economic factors, and consider whether/how these issues may impact the value of one or more of their assets. For example, an asset manager may buy or sell a property based on a trending marketplace or identify capital improvement opportunities based on the needs of the marketplace.
- Property Management:
Conversely, property managers operate much more at a micro level when it comes to the marketplace. They are engaged with tenants and soon-to-be tenants during the leasing process, to keep the building leased at the highest capacity while, at the same time, competing with the other properties in the local real estate market. While property managers may be responsible at times for marketing and advertising to attract potential tenants, they primarily focus on making sure the property is leased and responsive to the needs of the people occupying the space.
4. Decision-Making Role
- Asset Management:
The role of asset managers and property managers in decision-making importantly differs not only in scope but also in authority. Asset managers make strategic, high-level decisions that can affect the long-term strategy of the property/portfolio. They have the authority to make decisions about whether to sell, renovate, or rebrand a property in response to local market conditions and the firm’s financial goals. Financial performance metrics and long-term investment strategies guide the asset manager’s decisions, and they often work with other stakeholders to ensure their property decisions are congruent with the financial agenda.
- Property Management:
On the contrary, property managers make operational decisions daily. Their decisions are largely tactical, which concern maintaining the property, fielding tenant concerns, and ensuring the property is fully operational. They may make decisions regarding rent collection, maintenance schedules, tenant relations, and even short-term leases. Their decisions are necessary to ensure the property is functional and profitable in the short term, but the ramifications of their decisions do not typically extend to the overall strategic priorities of the asset.
Wrapping Up
The two functional positions of asset management and property management are valuable to maximize the potential of real estate investments. Asset management is long-term and strategic, and the goal of asset management is to maximize the overall value of the property. While property management is short-term and operational, maximizing income through operational transparency with structural maintenance, tenant satisfaction, and cash flow. If asset managers and property managers can communicate and create partnership agreements to work together, it can be beneficial by ensuring the asset is not only maintained for operational requirements, but also managed to maximize overall value and continue to be successful long-term.
Also Read : How Does the Property Sale Transaction Process Work?
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