The Now and the Future of Asset Management
The Times are Changing and so Should Asset Management Companies
By Justin Askew
Strategy is everything when it comes to comprehensive asset management. Outside of traditional buying, renovating, maintaining, and selling, it takes a forward-thinking approach to develop and execute an effective strategy based on current real estate market conditions.
Pressures from rising interest rates and inflation are likely to be more evident in the coming months, which creates the need for proactive, data driven recommendations for property disposition.
Factors for investors have changed in short order. Investors have benefited from low interest rates and a sellers’ market that resulted in appreciating values in most parts of the country from 20% to 35%. Current factors of supply chain slowdowns, cost of materials, rising labor costs and interest rate increases have challenged the potential rate of returns for investors. Investors should understand that times are changing, and the asset management approach needs to adjust accordingly.
The decision to rehab, sell as is, or lease the property depends on the type of asset, location, and the condition of both the asset and the strength of the local housing market. An effective approach is having the asset management company coordinate the collection of information from renovation companies, maintenance providers and local real estate agents to provide local knowledge of the asset location.
Once the collection of data has been completed, the asset management firm should analyze all the data to develop retail values of the property to ensure the best execution for the asset and to optimize the ROI.
Most parts of the country still have a shortage on supply of rental properties and affordable homes to purchase. This has continued the flow of investors acquiring and renovating assets with property values remaining at their current levels. As market conditions adjust, the cost of financing and renovation must be considered. Investors that intend on holding properties for rental should understand the rising costs of ongoing maintenance and property management and its’ potential to continue in the future.
A comprehensive asset management process should be a major consideration for the investor. This includes partnering with a vendor that has a deep understanding of each investor’s short- and long-term goals and ensure that the advisor aggregates and analyzes all data to recommend the most effective solution. When this occurs, the upside is always going to probable.
Despite record rises in building materials, labor costs and a global pandemic, fix and flip investors averaged 32% returns on investment over the last few years. Investment returns can be sustained with the right asset management. A weakening economy and housing market will impact labor and material costs as supply increases and demand decreases due to inflationary forces.
Renovation contractors have started feeling the slowdown from homeowner direct contracts resulting in contractors reconnecting with asset management companies for potential business opportunities. Our vendor management team has reported an increase in new contractors boarding for repairs, inspections, maintenance, and renovation by over 70% from just six months ago.
This trend is positive for management companies. Due to our footprint in all 50 states, the recruiting and retention of boots on the ground is key to our success on multiple fronts.
Dotting I’s and Crossing T’s with Rehabs or Renovations
The approach to a successful renovation for investment assets is to ensure costs are contained. Our team executes this by deploying the specialized contractors needed by the service line for the assets. We utilize boots on the ground estimating to help prevent unforeseen issues and forecast accordingly.
By collecting this data upfront and underwriting the estimates to account for actual material and labor costs, we provide real data to our clients to help them factor in overall renovation costs. By combining this with a thorough evaluation of real estate market conditions by reviewing both the sales of retail properties in the given market and the competition from neighboring properties, a comprehensive best execution strategy recommendation can be prepared.
The Role of Technology
We utilize multiple sources of technology to provide the most efficient and informed asset management solutions. Our proprietary software provides distribution of orders for estimating and project management. This application is used to send and receive data throughout the life cycle of the renovation project. This software also keeps the investor engaged by providing full transparency of the status, to include project progress and expenses throughout the project.
We use state of the art fraud prevention analytics and controls and embedded quality assurance and data integrity. We also monitor our contractors in the field and rank them based on performance to track efficiency and quality.
We provide a mobile app that affords our contractors with the ability to communicate in real time. This allows for a faster, more accurate means of providing estimates and appeals to contractors by allowing them to save time by submitting bids from the field.
This technology is vital to a necessary part of the overall management of the asset as it affords us the ability to receive bids quicker and provide them to the investor for quick decisioning.
Valuations and the Importance in a Changing Market
Valuation tools and software are instrumental in providing insight on ROI to investors. Advancements in technology, such as the use of artificial intelligence, are being implemented daily to improve the accuracy of valuations. This technology helps determine asset features and, in some cases, the immediate or short term needs for the property. Identifiers like the age of a water heater, roof, windows, siding, and other features enhance the ability to analyze the asset and prepare the best strategy for each property more accurately.
The Future
The extent that inflation and rising interest rates will have on real estate markets and foreclosures in the near future is unclear.
Many within the mortgage servicing industry predict significant increases to levels equal to if not higher than pre-pandemic. Recent trends of REO assets selling quickly have the potential to change as knowledge of individual markets and the factors impacting pricing and marketability of assets is critical to avoid extended aging of a property. This requires asset managers to utilize technology and provide a comprehensive, analytical dive into market trends to ensure investors’ properties are on the correct course to sell at the highest possible return in the lowest amount of time. We have seen cycles in
the past.
A team that understands trends and adapts as necessary will always be a win for the client.
