There’s been a change in the language you hear around the purpose-built rental apartment industry. It’s subtle, but it’s profound. More and more, experts in the industry are referring less to property management and more to asset management.
Why is this change important? The change of language represents a change of thinking. For years, too many apartment owners have been stuck in the old ways of doing business in the purpose-built rental apartment industry.
They provided the space, collected the rents, performed the maintenance and charged for utilities. Rent cheques were received once a month. The marketing of vacant apartments was rudimentary, at best, with advertisements in the classifieds, signs on the streets and little more.
Technology is already changing the way we do business. More apartment buildings have websites now that can not only advertise vacancies but give virtual tours of available apartments and book appointments. Payments can be made online along with maintenance requests landlords and tenants can track.
But we haven’t yet broken out of the thinking of our properties as something static, as just a plot of land with a building on it that we earn income on. Instead, we should be thinking of it as an asset.
Appreciating your asset’s appreciation
My colleague Jim Dimanis not only takes aim at the word “property,” he also has issues with the word “management.”
He told me: “I think a better term to use is actually asset appreciation. If you think of phrases like property management, you think of the same old, same old: protecting your revenue stream, limiting your expenses, maintaining the value of your asset, sticking to the status quo. It’s a safe, unchallenging word that doesn’t make waves.”
But if you ask any asset holders if they want their asset to be valued at exactly the same level it was when they purchased it, they’ll shake their head. We want our assets to grow in value and, in the current marketplace, where purpose-built rental apartments are outperforming all other sectors in the real estate industry, there’s no reason why our assets can’t grow in value.
So how do we make our assets appreciate in value? How do we truly appreciate our assets?
Asset management breaks down all aspects of maintaining and fostering an asset — from the income brought in by tenants through rent and other streams, to the expenses that are incurred through marketing, operations and upgrades, to how you can leverage your asset for further growth.
By looking at every aspect and considering new ways you can maximize income while minimizing expenses, you help your bottom line and grow the value of your asset.
A wealth of new opportunities
The industry is already discovering new ways to serve tenants, and to earn income doing so. One such new idea is a rent from payroll program. In the United States, 95 per cent of employers use standard direct deposit systems for their payroll, deducting income taxes, benefits and retirement fund contributions.
Canadian companies use similar systems all the time. Governments, banks and creditors like it because they get their money automatically and without hassle. Employees like it as it’s far more convenient than writing separate cheques every month.
There’s no reason why an apartment management company couldn’t get involved in this process and obtain rent payments from the employee’s payroll deposit. Landlords are thus virtually guaranteed their rent payments, reducing the cost of collections and bad debt while reducing evictions.
Tenants are less hassled and stressed over having to make rent payments every month. Already companies are offering this service to landlords and tenants, saving the landlord the hassle of arranging such deductions for individual tenants.
A better use of your time
On the expenses side, more intelligent marketing will lower the cost of finding tenants while finding them more quickly. Data-driven marketing techniques will help you make better use of the leads you gather, tell you what sources give you the most benefit, and allow you to cut ineffective advertising streams.
Similarly, benchmarking your operational expenses will help identify ways you can reduce energy costs and other items that impact your bottom line, while telling you which upgrades will be the most effective in increasing the value of your asset.
These examples only scratch the surface of what can be done. Over the next two columns, I’ll offer more concrete examples of how you can apply asset management to both your expenses and your revenue stream. The important thing to note, however, is that this is a developing field.
To benefit from it, we need to change the way we think about our apartment buildings. They’re not static sources of income, they’re opportunities for growth. Once we make that sea change in thinking, we’ll reap the benefits.
Derek Lobo is the founder and CEO of SVN Rock Advisors Inc., a real estate brokerage with over 30 years of experience in helping investors make the most out of buying, selling, and renovating purpose-built apartment buildings. Learn more about SVN Rock Advisors Inc., Brokerage on their website at www.SVNRock.ca.