Exploring the importance of active management in investment properties

Investing in real estate is so much more than just buying property. In fact, for the most successful investors, that’s just the start. If you want to own a rental or income-generating property and expect to make money with no effort, you may be sorely disappointed. One proven strategy for growing value in your real estate assets is to take a hands-on and active approach to management. Though it requires a lot of work and dedication, the benefits for an investor can be great.

We spoke to Paul Holowaty, VP of Operations of Income Producing Properties at Equiton, about the importance of active management. Holowaty and his team manage Equiton’s portfolio of 28 properties and almost 2,000 units. With a large and growing portfolio of income-producing properties and a team with over 100 years of cumulative experience, Equiton has proven the power of active management in investment properties.

What exactly does active management mean? Holowaty makes an analogy comparing managing a property to raising children. Hiring a third-party manager he says, is like hiring a babysitter. An active manager on the other hand is akin to a parent taking an active role and operating in the best interest of the property and its growth.

“It’s about doing what’s best for the property on a long-term basis,” said Holowaty. “You’re looking ahead and looking for opportunities to constantly improve the product and your services – not just managing from a desk or a telephone, but actually visiting the properties on a regular basis and reviewing them top to bottom so you can understand the intricacies of the environment in which your buildings are operating. That includes understanding not just the property itself, but rental market conditions, overall housing market conditions, vacancy rates, who your competitors are and what they are doing, and even the labour market in some cases.”

Through active management, investors can gain many advantages. For one, active involvement with a property provides an intimate knowledge of your asset, meaning you can better address problems and opportunities. In addition, by recognizing opportunities to improve your property and its operations, you provide a better product to renters who may be willing to pay more, benefiting both sides. Even the most hands-off owner can make changes on a whim, but without an informed approach, you risk making the wrong choices and wasting your effort. Through an active management approach, investors can optimize their efforts to get the most out of their property.

“You can fail to make changes that are leaving money on the table, or you can make changes in the wrong ways. For example, if you just misread the market and you spend a lot to make changes that the market doesn’t want. You didn’t know that because you weren’t taking an active approach,” explained Holowaty. “What works in Chatham doesn’t necessarily work in Kingston or what works in Toronto doesn’t necessarily work in Kitchener. You have to take that into account. You have to understand the markets in which you’re operating intimately in order to make the most of your opportunities.”

Active management is a continuous process that begins as early as the due diligence phase, by identifying opportunities to enhance existing properties on the market. By recognizing opportunities before you buy, you can start creating value in your property right away.

“We always investigate what can we do to a property to enhance the value and to capture full market rate. For example, with some properties, we’ve been successfully able to add a lot of value by taking very large living or dining areas and converting them into second bedrooms. We look for things that most benefit residents because they want these things and are willing to pay more for them. These sorts of opportunities can create tremendous value for investors.”

Holowaty outlines many options investors can pursue to improve the value of their units. These include options like renovating to let in more light, installing appliances like dishwashers, or creating or expanding communal amenities like fitness rooms. Even for a smaller real estate investor, property improvements can be beneficial, however, the capital outlay may be hard to workaround. For larger investors with multiple units, even seemingly small changes can have a big impact on increasing value. For these larger portfolios, you can still apply active management, though you may need help. It is crucial to building a team that understands the needs of the property and its goals to make sure everyone is on the same page.

“The difference between hiring a property management company and managing your own portfolio is instilling that sense of ownership and entrepreneurial attitudes into your resident managers who are your staff on the ground. You want them to manage it like it’s their own small business because if you have an entrepreneurial spirit, you’re looking for opportunities at all times. So, it’s not necessarily that an owner has to be the one there at all times as they can rely on a trusted team for the day-to-day management. The owner has to communicate the vision and the operational goals, then everything can align and fall into place. But, from an ownership perspective, it’s important that the owner or senior executives go out and be in the field as well alongside the staff regularly. Many of the really big operators out there, no matter how big they get, find a way to maintain that level of hands-on active management in their portfolio.”

Beyond the due diligence process and the initial changes you make to improve your property, active management is a continuous process that should be performed as long as you own the property. Holowaty and his team are constantly looking for new opportunities and ideas drawing on their many decades of experience.

“We’ve got a lot of initiatives because we bought so many properties from different owners.

Our staff comes from diverse backgrounds with varied experiences. Our focus in the next two years is really on the training and development and standardization of best practices. That doesn’t mean standardizing operations across the board to make them all the same – it means standardizing the best practices and drawing upon the hundreds of years of experience that our team possesses on the ground and in the field.”

For investors looking to make money in multifamily properties, an active management approach is a smart move to help your investment grow in value. However, not everyone has the time or expertise to do it themselves. With Equiton, investors can grow their money passively while their team of experienced managers takes care of the rest. Visit Equiton to learn more about their real estate funds and how they can help you invest your money in real estate.

Source link