Real estate management principles and practices

Practices Associated With Real Estate Management

In this paper, we will answer many questions regarding the practice of real estate management. We will also address the main question to the topic which is related to the underpinning or improving the value of assets and assess how this can be done alongside its extents. Additional information regarding the investor's point-of-view would also be included, here much of the emphasis would be pointed towards the real estate firms of U.K but the answers provided would be based on a general sense of the business.

Introduction to real estate management

It is relatively common for property owners to hire managers who specialize in the handling of real estate properties on a daily basis. This manager might work as an independent person or in any property management firm which provides its services to many different types of clients. There are many different services that are performed by real estate managers for the main property owners who might not have the skills or time to manage any property in an effective manner. Here, it should also be mentioned that the managers based in U.K as well as the prominent real estate firms such as Deloitte and Katten are somewhat similar to their counterparts in the U.S. In terms of practices. Following are some of the main things done by a real estate manager.

Financial management

It is very common for any real estate manager to handle the financial management related with the properties of any client. Here, the manager might collect rents from tenants by himself or payments can rather sent to the office of the manager by the tenants themselves. The real estate managers are responsible for the handling of payments for property owner like utilities, taxes, insurance, mortgage and maintenance fees. It is the duty of the manager to report to the main owner of property on a periodical basis regarding the statuses of costs and rental payments. Many British firms such as Deloitte are known to take the services of various financial advisers even from different other sectors of market in order to help them in their business, this assists them in having a broader perspective regarding the market and trends surrounding their main business.

Rentals

Real estate managers might take care of new rentals for property owners by the advertisement of property, screening tenants as well as handling the lease agreements for any new renters. Owner of the property might determine the proper amount of rent that it needs to charge at new tenants, it may also happen that the real estate manager uses its expertise and experience to appropriately calculate the rent of its rental unit. It is the duty of managers to keep a proper track of leases which have expired and handle evictions as well as complaints from tenants. Real estate manager should also be familiar with laws regarding landlord tenant which regulate the renting of commercial and residential properties.

Management of services

Real estate manager may also hire maintenance services for different purposes like cleaning services, pest control, lawn care, security services and trash removal. Property managers are also responsible for the monitoring of work by the vendors in order to ensure the property is properly maintained. These maintenance services that the manager looks after can be separately charged by the manager from the owners, in some cases the manager also adds additional benefits alongside the regular services that it has to offer in this department so that more and more customers find it worth availing. These additional benefits can include a wide variety of things such as added discounts on the purchase of additional services, free offers alongside regular services and so on.

Many British real estate managers also provide unique services to their customers which are related to finance, energy and resources, life sciences and so on.

Repairs

It is the duty of the manager to come within a contract with different repair services such as electricians, home repair, construction contractors and plumbers to make repairs at the property whenever it is necessary. "Real estate manager might even consult with the owner of the property before making any type of repairs in the property in order to properly determine the budget that is required for the necessary repairs" (Herr 2009). It is also compulsory for the manager to be familiar with regulations and building codes when scheduling repairs at any property before actually applying repairs related to any category or type.

This must be done so that the manager is well aware that it is not going against any laws regarding the real estate or the general state in which it operates, breaking any rules and regulations can be a huge loss for the manager as well as the property owner in terms of both finances and reputation. Therefore any such action must be taken very carefully and if necessary then consulted with all parties involved even the law agencies when required. There have been many examples where the real estate manager have lost a great deal of property as well as customers because it failed to follow up on laws of the state where it operates therefore this issue is taken very seriously on a general note by every real estate manager.

Different aspects of management

There are different aspects of real estate management, some of them tend to yield results in the short-term while others require longer period to give out benefits. Increase in the rate of rent which is directly related to inflation could benefit the real estate manager in the short-term.

Whereas the prospect of diversification of value in different terms such as asset allocation could turn out to be a very beneficial deal for the real estate manager in the longer term, it is commonly observed that real estate returns have somewhat low correlations as compared to other classes such as stocks and bonds. This adds to the point-of-view of diversification advantage.

From the point-of-view of any investor, the diversification process is an extremely profitable prospect if dealt properly. This could greatly add value in the investment that the investor puts in its assets. Many British real estate managers as well as firms are known to diversify their investment in different directions in order to yield better profits out of them, this includes Deloitte which puts investment in government as well as private sectors.

Adding little value

Remodeling is a process through which any real estate manager could add somewhat little value to the properties that it represents. This includes the remodeling of any building such as house or offices to make them appear pleasant and valuable by changing its roofs, siding, electrical wiring and plumbing. These changes are cost effective only if they are safely done or if the property owner plans to keep the property for a longer period of time or if the building where all of this is done holds a special architectural or historic value or it is considered to be a low valued building present in a higher valued neighborhood.

Furthermore, in the U.K firms such as Rightmove which specializes in dealing with new homes and overseas properties are known to be excellent in adding little value. Here they use many tactics in adding value to their assets such as changing outward design, interior plans and so on. They also tend to keep their customers up-to-date with the latest in offers the government has to provide which makes them an attractive firm to invest in.

Underpinning and improving values of assets in broader context

It is a very well-known fact that any good real estate manager can manipulate the value of assets. Here are some of the ways through which this could be done. The value of asset greatly depends on the location of the asset, e.g. If there is a house or a land property located in the center of any business hub of an urban area then it is by nature tend to sell at a much higher price as compared to any property which is located on a rural area.

The real estate manager can condition the price of its property according to the factor of jobs which could be associated with that property, i.e. If any property is bound to attract more business then it could be labeled as more valuable compared to the others even though if it might not be placed at a strategically valuable place. Many properties are also affected on different factors such as being on coastline, located near important roads or buildings and so on.

The district or neighborhood also has a very strong influence on value of a property. These values are driven through the economic principles of regression, conformity and progression. The progression principle states that any property of less value is enhanced because of proximity to much better profits. Simply put, value of cheap houses in any neighborhood can be risen up if located near higher value homes.

Regression principle is the opposite of progression, it states that any property which has a high value is lessened because it is surrounded by properties of inferior values. Finally, the conformity principle is more subtle as compared to progression and regression but is considered to be equally important.

According to conformity the improvements must conform in age, size, style and condition to maximize value. In other words, if all the houses in a neighborhood have two garages then your house would achieve its highest value by having two garages as well. The construction cost also play a very important role in determination of value by the real estate manager. Rising costs in construction can add value since it increases the overall cost of replacing any existing building as well as other improvements.

Here, it should be noted that the improvements made during any specific time tend to lose its value because of normal aging process as well as other types of depreciation. Therefore it is seen that improvements lose their value because the depreciation exceeds overall rise in construction costs. The real estate agent can greatly utilize this factor in underpinning or exaggerating the value of any property.

Besides all of these mentioned factors, the real estate manager could alter the values by observing the buying power of potential investors, it is seen that any investor which has more power of investment is shown a better asset with an exaggerated price as compared to any normal investor who holds a nominal capital in front of the manager.

In U.K, the firm Aviva and Foxtons are very well-known for their business practices regarding real estate property sales where prices are often exaggerated beyond the norm. The managing executives of Foxtons have many times been accused of over valuating the price of any property to the customers by different investigation agencies. This may allow the customers to be associated with the firm even after their deals. Foxtons' executives have in the past been accused of creating a highly pressurized sales environment in which their agents do their operations.

According to many critics the basic salaries of their employees is also very low which forces them to rely on commissions. These practices are also common in other firms across U.K. Here, from an investor's point-of-view we see that the majority would prefer to trust the firm and would abide by the rules and regulations set by the firm itself.

Barriers preventing proactive management

There are many different barriers which hinder the successful planning by any real estate manager or firm. "In order for any plans to yield proper results, the manager must first identify any possible barriers and then work hard to overcome all of them" (Shell 2003). Common barriers which could occur in the planning effort of any real estate manager are as follows. Firstly, it should be noted that no manager is born with a proper ability to plan. This comes up with successive decision making and analyzing the broader perspective regarding the overall market trends in real estate. Many managers are not good planners because they don't have a proper education or background regarding the dealing of any asset. It is therefore deemed very important that managers take great time in planning in advance before making any big business deal.