Why Asset Managers Are Key To Consistent Returns | Ep 64

James: Welcome to the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing. And our mission is to equip people to invest wisely in both properties and residences so that together we can build wealth while improving housing. I'm James and this is my wife Jessi.

Jessi: Hey I ate at Subway today. Okay. And I was sorely disappointed going

James: back to your roots 'cause you used to work there.

Jessi: Yeah, I think that one, the

James: added subway

Jessi: it, yeah. Not that one, but yeah. I think maybe there was like management change something. Okay. The most noticeable thing was they switched from Coke to Pepsi.

Oh, that's a big

James: deal.

Jessi: I went to this particular one because they had Cherry Coke. And I love Cherry Coke.

James: And they didn't have it. And they

Jessi: didn't have it. Did they have Cherry

James: Pepsi?

Jessi: No.

James: Oh.

Jessi: They had three types of Pepsi. Pepsi. Diet Pepsi. Pepsi Zero. Or No Sugar or something.

James: I think that's the new sugar. Is that what they call it?

Yeah. Because they don't want to say No Sugar. They want to say Sugar Free. Which is Zero. Interesting. Well, I'm sorry. Did you go to the store and get some cherry Coke afterwards?

Jessi: No.

James: Man, that's rough. I just

Jessi: dealt with it.

James: Just dealt with it. Man, that's tough. I feel for you. Yeah. Really do.

Jessi: Kind of wanted to like write one of those like notes to management or something.

Well,

James: if you listen to last week's podcast, I drink water. So. Mm hmm. It's all good. But. I don't

Jessi: know. I should have had water.

James: Yeah. You know what? Sometimes there are management changes. Yeah. Yeah. And. That's really important. And so that's why today we're talking about the importance of an asset manager, because if you get a good one, it can really help your investments go forward.

So curious, do you know what an asset manager is?

Jessi: Someone who manages assets. Nice. Can you say it without using the words? Someone who takes care of other people's things. Okay. All right. Okay.

James: There's a really good book. It's called Best in Class. How to Manage Your Multifamily Asset, Avoid Mistakes, and Build Wealth through Real Estate Investing.

By Kyle Mitchell. Which I always was like, I feel like this should be a book on hotels and customer service, but interesting, you know, whatever with that title, or maybe I think of a dog show gun. Okay.

Jessi: All right. I think there's a dog show movie called best in class, I think, or best in, best in best in

James: show,

Jessi: best in show.

Yes, it's best in show.

James: Nice.

Jessi: Anyways. Anyways,

James: this guy, Kyle, Michelle Mitchell, he describes an asset manager as a professional responsible for overseeing the performance of a real estate investment, ensuring that the property aligns with the owner's financial goals and guiding the property management team towards meeting their goals.

Hmm. Yeah, and so it's specific to, there's like seven key things that they did,

Jessi: property investment.

James: Yes yes, yes, yes.

Jessi: Hmm,

James: that's a good

Jessi: question. Hmm. Or at least, it can be, but not all asset managers are. Involved in real estate. Yeah. So I think

James: you can have an asset manager. Can you have one for like stocks and bonds?

I feel like you can. Yeah. It's whatever your assets like managing it. Yeah. I, but in this particular specific, it is a specific skillset for real estate specifically. So if someone says I'm like a syndicator, they're an asset manager because they're. Managing that asset. And there are at least seven things that they have to do.

Okay. Yeah. Yeah. So I want to go over them. And so the reason why is if you're looking to passively invest in a deal, either as a lender or as an equity partner, you want to make sure that that sponsor is, is doing these things to manage that asset, the investment well, so that. If you have a good one, you will get good, consistent returns over time.

Jessi: So am I hearing that correctly? That an asset manager and the sponsor, that's the same person there. They're interchangeable.

James: They're ye an asset manager is a sponsor. A sponsor is not always an asset manager.

Jessi: Like

James: they might be like, sometimes a sponsor is a person like, Oh, I do the fundraising piece, right?

Do the tenant, not tenant investor relations piece. So they might have specific jobs, but the operator, I would argue is an asset manager. Yeah, there's a whole bunch of, cause you can have sponsors, you got multiple sponsors and they can all have different roles. One of which is to operate, oversee the property that is an asset manager.

Got

Jessi: it. Okay.

James: Cool. Cool. Cool.

Jessi: I feel like there would be a good org chart tree thing that would be helpful to map that out. Yeah.

James: Maybe.

Jessi: Anyways, asset manager manages the property.

James: So it's like there's seven key things that they do. First one is they set the strategy and goals for the property, such as are we repositioning it?

Are we renovating it or are we in stabilization mode? Yeah. Or I think that's really important. They established some of the financial targets like the NOI, cash flow, the overall returns for it. What are we looking for? Those are, those are really important. You're getting into invest.

Jessi: And

James: they, this one's huge.

They oversee property management.

Jessi: Okay.

James: So they're not doing the day to day finding the tenants and that kind of thing, but they're making sure that that stuff happens. And. So they're

Jessi: like hiring a different property manager or.

James: Yeah, potentially. They're holding the property managers accountable from and how they have key performance indicators.

Such as like occupancy rate, rent collections, and expense control. So they're watching over those things, analyzing, having conversations with the property manager, figuring out, Hey, how can we make this better, easier for you? Have a, what feedback are you getting from tenants? And so we'll implement some of that feedback.

They also set the budget in financial oversight, which is huge. Is that like for the entire

Jessi: project?

James: Yeah. Oh yeah. Interesting. They analyze the profit and loss statements, they identify variances, they take corrective actions. They also will forecast future performance based on current trends. But yeah, for the entire project, whatever that is.

Jessi: Okay.

James: Which makes sense, right? If you're, if you're, if you're doing the, setting the strategy and the ROI, and sometimes it could be a team. It's not necessarily like a singular person doing all this, but yeah. Number four, they're maximizing value. Whatever that means. Well in this case. They're making sure that the property's value can be whatever it is through rent increases, cost reductions, capital improvements, that kind of stuff, which is really like the whole point of the entire investment thing.

Yeah.

Jessi: They're making sure that investors make money.

James: They're often conducting, conducting market analysis to ensure competitive positioning, that kind of stuff as well. Number five, even though I said this was a different role, investor relations.

Jessi: Well, and like you're saying it, it seems like. Most syndication people, companies, whatever, have a team of people doing these jobs.

Correct.

James: Yeah.

Jessi: It's not necessarily a singular asset manager. It's like, it's just one guy without a team of what amount.

James: Right. You might have one guy where it's like, they do all the talking, they're the front man, they know everything. That's me. But then. They do have other people who are helping out with stuffs.

Jessi: Yeah. They have, yeah.

James: Yeah. Yeah. Managers that they're

Jessi: working

James: with or advisors or. In this case, providing updates to investors on their performance through reports and calls and ensuring distributions are accurate and timely. Very important role, I think.

Jessi: Yeah.

James: And I thought this was interesting. Number six, capital expenditure management.

So they oversee the major repairs, renovations, and improvements. So your property manager, they're going to focus on turns, you know, making sure it's clean, doing small repairs, that kind of stuff, working with you on a budget for it. But when it comes to like, Hey, we're doing this big renovation stuff.

That's not for the PM to do. The asset manager's typically in charge. That makes sense. You may or may not hammer, but

Jessi: well, you, you may or may not even have a property manager, depending on what type of. Investment you're doing.

James: Yeah. Okay. Fair enough. Like, you know, if you're doing a flip or something like that.

Yeah. That's fair. Yeah. But they're overseeing the contractors. Just making sure it's done on time and within budget, I think is important. And to be honest, it's really hard to do has been my experience

Jessi: at like just in general asset management. No, no,

James: no. The, cause I got one more after this just over overseeing the capital expenditure side of things.

Yeah. Working with contractors. I've, I'm, I've, I seem to be pretty successful at getting them to stay within budget. Mostly because I really emphasize that. I struggle with the timeline piece for

Jessi: it.

James: And mostly because they're just balancing other jobs and jumping back and forth. And I want them, I don't want them to do that.

Like just, Oh yeah, you

Jessi: just want them to work on yours.

James: Yeah. I have noticed though, that if you threaten to go over there and do work yourself, they usually will like, Oh, okay, no, We'll get over there. So, what that's amazing. It depends. Huh? Yeah.

Jessi: Yes. That's, that is a management strategy. We got

James: to get this thing done.

Like we had a situation where He was like, Hey, we're done with the job. And the owner of the contracting company, he didn't go check it out. And his guys were just there and they, they didn't actually finish. There was probably like 12 things. Like there wasn't a light switch cover that wasn't on the register that was missing, I think one time they broke or lost the cover for the, the

Jessi: thermostat,

James: it was like some blue tape that hadn't been taken down finishing stuff. Yeah. Whatever. And we got photos that are going to be taken on Thursday. Yeah. And so we were like, well, like today's Tuesday, like we need to get this done. And so I was like, we'll just, we'll just do it. Like, let's just go.

And. But at the same time, I was like, but we should tell him this. So let's tell the owner. So he knows, I'm like, just from a, like have feedback and training. So he, like, he can tell his guys, Hey, come on. But I'm like, but I didn't trust that he would get in that day. Cause it like took him a week to, to get to this point where I was like, this was like a one day job, which it was, it took him five days to get in there.

Anyway. So we were like, Hey, like saw this. We're going to take care of it because this needs to get done today because we have photos taken the next day. Yeah. And he was like, no, no, no, no, no, no. We'll get in there pro bono. Don't worry about it. Like we should have finished this. Yeah. Good. But yeah, so anyways, it's kind of an interesting.

Yeah. I was like, man, I was like, for me, I'm like, it's going to blow like two or three hours on my day, but not anymore, which is good, which is good, which honestly he did the right thing. Took responsibility. He said, yep, we're going to finish it. So I'm, I'm happy.

Jessi: That's a good example of one of the roles of an asset manager.

Right.

James: Thank you.

Jessi: You know, and, and trying to wrap your head around like. Okay. What is it that you're actually doing when you're managing things? It's like, Oh, okay. You're making a phone call and you're bringing

James: hot chocolate to the cruise. But yeah, yeah,

Jessi: encouraging people and calling this lots of phone calls, lots of property visits to be like, okay, where's everything at?

Are we on budget? Are we on timeline? Like all the people doing what we've asked them to do and then letting your investors know, okay, we're on budget, we're on timeline, here's what you can expect.

James: Yeah, exactly. Yeah. So you get it. Oh yeah. And then the last one is risk management. Identify and mitigate risks that could impact a property's performance, such as market shifts, that kind of thing.

And then just ensure like proper insurance and compliance with regulations as they make sense. Mm hmm. Which is good, you know, I got an awesome insurance guy. So makes it that part pretty easy.

Jessi: Yeah,

James: but yeah, but no It's watching conditions and that's something as we're in the middle of a flip like we're watching the market to see what prices are doing And and readjusting our mindset for like, okay, maybe we'll do this.

Maybe do that and it and it It's it will slightly change how we do things, but

Jessi: you have a range for most things. I would imagine. Yeah, yeah,

James: yeah. We try to be conservative on the front end of it. So we don't freak out. Right. Which is part of where that risk management comes in, I guess. Right. Sure. Yeah. And so another way to say like why they are crucial is they act as the bridge between the ownership group, the investors and the property management team focusing on that big picture rather than the day to day operations.

That's really what their role is. And they're just trying to make sure that it, you know, performs at its highest possible way and that, you know, and if, and if things.

So that's really what a, what an asset manager is. And so if you hear that, you go, Oh, okay, they're, they're that person who's setting the budget and the targets there, they're watching over the property manager, the contractors, they're just, they're watching the market as well and trying to make sure that the strategy maximizes value for the investors.

That's what they do. Is it a 40 hour job? No, not really. But,

So if you're looking to invest in something, you might ask them questions within those seven areas, like, Hey, tell me about how you will manage the contractors or how have you done it in the past? Right?

Jessi: Or how do you do your market analysis?

James: This dovetails pretty well with my with my free ebook that you can get online at furlough.

com. That's called Good Deals Only. That is all about due due diligence. And part of it is talking about the sponsor and a lot of it has to do with that asset management piece of it. Yeah. But yeah, but those are, those are just good. This boils

Jessi: it down really nicely.

James: Yeah. Great book. It was written for people like me sponsors.

I've actually, I've told property managers, like, honestly, like as a property manager, you should read this book so that you understand what it is that we want you to do so that you, we are all aligned and working in the same direction so it doesn't feel like we're fighting each other. That's, that's advice that I give to you.

Property managers, which it turns out I am one as well. So woohoo. And so I get it when a manager, when an owner comes to me, I'm like, yeah, I know what you're trying to do. And I can ask, and I can even, I can even help them out, right? Hey, let's talk about your budget. What are your expectations for returns?

And I can say, Hey, I saw this market trend. Is this going to change anything with your investment strategy? Let's just talk about it.

Jessi: Yeah.

James: And so I can kind of help lead them and guide them because I know at least what they should be thinking about. That's super smart. Owner slash asset manager.

Jessi: Yeah.

James: So yeah, man, there you go.

I think it's just good and helpful stuff to know. Cool. Cool, cool, cool. All right. Well, if you enjoyed this podcast awesome. Thank you. We'd love it. If you left a rating or review wherever it is that you listen to podcasts, and if you are interested in investing with us, you can check us out at furlo.com we've got all sorts of information there about our investing thesis. And a bunch of good free download giveaway, giveaway, gimme freebies. Yeah. Yeah. Free downloads, free downloads as well. Do you just got to give your email address, but I mean, come on, how much does that work, right? You just get more cool stuff.

More cool stuff. Yeah, exactly. Cool messages. It's true. You will. So yeah. So with that, thanks again for listening. Have a great day.