Buying Real Estate Without Being A Landlord
Discover the secret to investing in commercial real estate without the hassle of being a landlord. By hiring a skilled asset manager, you can take a step back from active ownership while still maintaining control and earning income from your properties. Learn how an asset manager can optimize your investments, provide ongoing oversight, and deliver strategic recommendations to enhance your portfolio's performance and value. Watch this informative video to find out how you can focus on growing your real estate business without getting bogged down in day-to-day management.
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Key Takeaways:
Hiring a third-party asset manager allows real estate investors to take a step back from active ownership responsibilities while still maintaining control and earning income from their investments.
Asset managers serve as the CEO of the property portfolio, handling execution, optimization, and strategic direction to meet the owner's goals.
Asset managers assess properties, identify issues, and establish action plans to improve performance, maximize returns, and ensure smooth operations.
Regular reporting from the asset manager keeps owners informed without overwhelming them with non-essential details.
Hiring an asset manager typically makes sense once a portfolio grows beyond 20-100 units in size or complexity.
Asset managers can optimize operations, enhance returns, and add value beyond just maintaining the status quo.
Interviewing potential asset managers to understand their experience, systems, transparency, and track record is important for finding the best fit.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:00
So you've taken the plunge into commercial real estate investing, maybe you've bought an apartment complex or retail center or an industrial facility. This is definitely an exciting milestone, but you've got one problem, the work of actually operating and managing the asset you've just acquired. If you're not interested in becoming an active landlord, handling maintenance requests, collecting rent checks and dealing with everyday tenant issues, there is still an option for you hiring a third party asset manager and it might not cost nearly as much as you think which we'll get into here too. But first, what exactly is an asset manager? Well, an asset manager essentially serves as the CEO of your property portfolio just as a CEO oversees and directs all aspects of operating a company. The asset manager handles the execution and optimization of your real estate business. The property manager is like a VP of Operations, taking care of onsite issues and day to day functions. As the owner your role, if you had an asset manager in place would be similar to being a board member overseeing the direction of the company, the asset manager acts as the linchpin between ownership and property management, developing and implementing strategies to meet your goals. Why would you choose third party management utilizing a third party Asset Manager allows you to take a step back from the responsibilities of active ownership while still maintaining control and earning income from your real estate for investors with demanding careers. limited bandwidth or lack of direct management experience delegating to a professional Asset Manager provides some pretty crucial advantages. It frees up your time to focus on your strengths like sourcing the next deal or raising capital, rather than getting bogged down in the operational minutiae leverages the system's expertise and manpower of an experienced real estate operations team provides an objective perspective to identify issues and opportunities the owner may not see it's always nice to have things at arm's length delivers high level reporting and recommendations for strategic direction serves as an intermediary to align property management with ownership goals and allows you to have true passive ownership. With limited involvement required from you as the investor, you could always hire them full time to come work with you. But it's pretty nice to hire a third party asset manager for your company instead of a direct employee, because chances are good, it wouldn't be a full time job. And you'll save quite a bit of money here.
2:26
So when does it make sense to hire an asset manager if you own one or two smaller rental properties? Full Scale Asset Management might be overkill, but once your portfolio grows to a meaningful size and complexity, handing off oversight starts to provide real benefits. Typically, I see investors hiring third party asset managers when you reach about 20 to 100 units at this scale, the workload becomes difficult for most individuals to handle effectively while maintaining a separate career after you've acquired your first one to three commercial assets. Even one large multifamily office or retail property can present a steep learning curve. Maybe you've secured assets in new geographic markets, where hands on oversight is just impractical for you. Maybe you have limited real estate experience and are not interested in becoming a landlord or maybe issues are emerging on your existing portfolio that require a higher level of oversight and correction. But I would imagine that for the majority of you, you simply want to step away from active management and focus your efforts elsewhere. Let's talk about how an asset manager optimizes your investment. When an asset manager takes over one of your properties. They will dig into understanding every aspect of its current status and any issues this due diligence includes weekly reporting, review closely analyzing key metrics like occupancy rates, rent collection, marketing, funnel conversions, and expenses. Speaking with the property manager to understand strengths, weaknesses and priorities walking the property to evaluate maintenance issues, we'll get the amenities turns, renovations and curb appeal. Meeting tenants to gather feedback and hear any concerns directly reviewing financial statements, vendor contracts and key documents to spot needed improvements and conducting market research to benchmark performance and set a strategic plan. Based on this broad assessment. The asset manager establishes action plans to address weaknesses, reduce your costs, improve efficiency, retain residents and boost performance for assets requiring heavy intervention. They may take a more hands on approach alongside the property manager to steer the ship in the right direction. Typically, an asset manager will pay for themselves, then there's ongoing oversight on a routine basis. A top notch asset manager should oversee the property through weekly tracking of key metrics with swift action plans when issues emerge. Is occupancy declining or work orders piling up? Is the marketing spin generating any leads? Quarterly budgeting reviews and adjustments based on the evolving market are projections realistic? Are rents keeping pace with your expenses overseeing capital projects like renovations or
5:00
amenity additions to maximize your return on investment. Of course, you'll have regular property inspections to proactively identify any needs, as well as auditing property management through reviews of reporting, invoicing, and bank statements and of course, actual work verification. They'll maintain strong communication with tenants, the manager and ownership as well as provide the owner with high level strategic recommendations to enhance performance and value. Essentially, the asset manager serves as the eyes ears and brains on the ground to ensure smooth operations for you. They provide accountability and alignment with your vision on the site. Rather than getting bogged down in the day to day yourself. You're free to focus on the bigger picture to ensure full transparency and maintain alignment. asset managers provide owners with regular reporting, which should include weekly flash reports on key metrics and inventory actions, a monthly detailed performance and p&l review, which will give you more of the full financial picture quarterly updates on capital expenditure projects, renovations, major issues and progress towards your goals, an annual strategy, overview and budget proposals for your approval, as well as real time communication on emerging opportunities, risks and priorities. The cadence and format of reporting is tailored to each owners needs and your preferred involvement level. The goal is to keep you informed to make smart decisions without overwhelming you with the non essential details. Now if you're liking this content, and you want to learn more about commercial real estate, don't forget to like and subscribe to my channel. Now here's what you need to ask prospective asset managers as you're going through the hiring process. What is your experience in real estate asset management, local market experience specific asset classes, they should have answers that check the boxes that you have specifically on this asset? What systems and processes will you implement for oversight and reporting? How often will you be reporting to me? How will you evaluate the property initially and identify any issues that need correction? How will you hold the property manager accountable? And how are you going to audit their performance? What are your preferred ways to communicate with me? How are you going to add value beyond the status quo and optimize operations or enhance our returns? Can you share some examples of past successes and failures managing assets, that is one of the biggest ones, in my opinion are the past successes and failures. If they don't have any failures, they're probably lying to you. So make sure that they are truthful about that, and explain to you everything that they took away, and how they'll do it better next time gaining an understanding of their experience management approach systems transparency, that's a big one, as well as their responsiveness and track record is essential to finding the best fit for your needs. Now the best part, they don't really make a massive dent in your bottom line. If you're looking to hire an asset manager full time to run your assets, you're likely going to be looking at a starting salary of at least $120,000. And oftentimes much higher than that, for the right individual with experience managing assets like these. However, if you're looking to bring on a third party asset manager, they'll typically charge you between 1% and 2% of cash flow from the asset which is much more affordable for you and will give you the ability to scale without taking a massive hit to your bottom line. So if you want to buy real estate without being a landlord, a skilled Asset Manager provides the ideal solution you get all of the same benefits that you would typically investing in real estate without having to run the day to day with your CEO in place overseeing each asset you are free to go source new deals, maintain key investor relationships, and focus on high level strategic direction for your portfolio. Now that you know how to buy real estate without becoming a landlord, check out this video here on the easiest commercial property for beginners to buy.
This episode of Office Hours covers strategies for commercial real estate investing, brokerage, and career growth as Tyler Cauble takes live questions. He also discusses upcoming projects like a brokerage mastermind and hiring an investor relations lead.