PROPERTY MANAGEMENT VS ASSET MANAGEMENT
Luxury vacation home owners and investors will often confuse property management with asset management, and question wether or not there really is a need to have both professionals on their investment team.
However, the reality is that both professionals play very different roles, and investors who work with good asset managers as a key part of their team will usually generate much higher profits, better overall returns, and see stronger portfolio growth over the long term.
Below, we explain the main difference between the two separate professionals, and how having an asset manager can help investors maximize yields and market values for their luxury vacation rental investments.
A luxury vacation rental property manager’s sole focus should deal with the routine, daily activities of managing the property’s regular maintenance requirements.
Core activities include:
Creating a preventative property inspection and maintenance schedule
Coordinating vendor communication and payments (pool, landscaping, HVAC, appliance and technology installations, home repairs, private security, etc…)
Restocking property inventory
Oversee cleaning operations
Help implement guest experience workflows
Providing monthly or quarterly, and yearly expense reports for the asset
Helping to enforcing the rental rules and ‘Guest Code of Conduct’
Being responsive to time-sensitive requirements and help coordinate solutions in case of emergencies
Many property managers in the luxury vacation rental space also try to perform a mixture of property marketing and booking operations — although we would argue that most do a very poor job in this field.
The main problem is that when traditional luxury vacation rental managers also perform marketing and booking operations, they are very limited on what they can achieve or produce for the asset. We briefly touched on this ‘downward spiral of value dilution’ in the previous section, and we explore this concept in more detail in a separate piece that explains the situation in more detail
And worse, when times get difficult, their maintenance duties are the first to be neglected when those responsibilities are directly tied to revenue (ie; a commission-only model).
That’s why at VRP, we ensure that the property managers we hire are always strictly focused on their core activites, maintenance duties, and simple task coordination — never tied to the revenu side of the operation.
All of these duties can easily be performed by a good local property concierge for a reasonable monthly service fee with a few incidentals along the way.
When real issues are raised by guests during their stay, or by the property concierge during their regular inspection schedule, we will call well-referred experts just like everybody else who owns a luxury home, because there’s no sense in paying a premium for less than 1% of the property’s total operation.
Great property managers (or property concierges) are essential to a successful luxury vacation rental operation, however, there is no real or tangible value created in property management.
That’s where asset management comes into play.
While the property manager’s (or property concierge) role is almost exclusively task-oriented, the asset manager’s role is to focus on the big picture and longer-term strategy of maximizing the value in the asset asset and realizing the highest ROI for the investor.
Maximizing the returns and value of a luxury real estate investment requires careful oversight and a devout understanding of the luxury real estate market and capital market trends.
The best luxury vacation rental asset managers help an investor’s portfolio to grow outsized returns, by ensuring that each asset produces exceptional NOI and that its value appreciation outpaces that of the regular market, all while mitigating any potential risks during the lifecycle of each investment.
Key responsibilities include:
Creating an overall growth and revenue strategy for each managed asset and the entire portfolio of luxury vacation rental holdings
Selecting and overseeing the KPIs that define the investor’s yearly dividends and total returns
Improving asset value and accelerating market appreciation by strategically reducing expenses, increasing income, strategizing high-yield improvement projects, and overseeing property management operations.
Selecting and working with key members of the investor’s team, including property managers or concierges, maintenance vendors, and even real estate brokers for future investments and exits.
Oversee of perform all property marketing, booking, and rental operations to ensure that both of the asset’s Perceived Value (PV) and Net Operating Income (NOI) are maximized
Preparing, monitoring, and adjusting property financial projections, financing strategies, and improvement projects for each asset under management.
Selecting key markets and segments for portfolio diversification and new profitable opportunities, and consulting in the underwriting and negotiation of new asset acquisitions.
The asset manager’s role is similar that of an orchestra conductor. Without the conductor, every musician would resort their own individual interpretation, timing, tuning, and playing of the notes.
You could gather all of the absolute best musicians in the world, but without the conductor leading the group, chaos will ensure and the orchestra will sound like nails on a chalkboard.
And that’s a whole lot of wasted potential.
The same goes for luxury real estate and the luxury vacation rental operation.
A world-class asset manager doesn’t just play great music. They make great music.
At VRP, we don’t just have a world-class marketing, booking operations and design team, we also have a keen understanding of what it takes to accelerate the growth of a luxury real estate asset and maximize its overall returns for investors.
We create value from how we acquire, how we update and design spaces, how we implement our marketing and management strategies, and ultimately, how we reposition and market an asset.
At the very least, our goal is always to outpace regular market appreciated by 2X and generate gross cap rates above 15% (we often hit upwards of +20%), while optimizing operational expenses throughout the life of the hold period.
Anything less is wasted potential.
Overall, a professional asset manager can provide a invaluable perspective for passive real estate investors whose regular income streams and day jobs are too lucrative and demanding to fully appreciate and maximize the profit potential of each asset within their real estate holdings.
And increasing returns by an extra five, ten, sometimes even fifteen percent on $10,000,000 in assets goes a long way.