ASSET MANAGEMENT

Not all industrial real estate agencies run an asset management division. This is important to understand when you purchase your investment property. A managing agent may manage buildings, but an asset manager runs everything to do with your investment, including both the financial aspect and the physical property management. When a company manages many hundreds of buildings in this way, they will attract higher quality asset managers to their personnel, and will have installed better systems for more effective control and management of your asset. As a general rule, the higher the volume of properties a company manages, the higher the level of work ethics and discipline a company must demonstrate. The result is a higher quality of service to the client.

A selling agent who offers to manage a property, when asset management is not their main skill, really only manages on a crisis basis–for example, when the gutters start leaking. A good managing agent has systems in place to ensure that the gutters are cleaned out regularly to prevent them from becoming a crisis. This preventative maintenance strategy preserves the value of your asset.

I went to meet Jessica and Melanie, asset managers at Bawdens Industrial Parramatta. These young women control two-thirds of Bawdens Asset Management Portfolio. They explained to me exactly what they do:

Inspections

With the help of an assistant, each girl manages a portfolio of approximately 200 properties.

Photos are taken at the start of every lease term for every property and are kept on file. Once a year, usually on the anniversary of the lease agreement, the property is fully inspected. Any additional fixtures and fittings – that is, any structures, alterations, or other changes to the property the tenant may have made – are recorded and photographed. After each annual inspection, a report is placed in the property file. I strongly suggest that you request and read this annual report–it will alert you to upcoming maintenance requirements so that you can start budgeting.

Occasionally, these managers find surprises, such as evidence that someone is sleeping on the site. They will call the owners to alert them and advise them, but ultimately it is the owner who decides what action they want the managing agent to take.

The girls get to know the owners and learn which ones want to be informed of everything, which ones want the managers to deal with everything, and which ones say, ‘Oh, just do whatever you want,’ but don’t really mean it!

Gross Rent vs. Net Rent

There are two types of lease agreements that the girls manage: Gross rent and net rent. With a gross rent agreement, the tenant pays 12 agreed-to equal payments a year and has no more costs to pay. The owner will pay all associated outgoing expenses for that tenant’s property, such as strata fees, rates, electricity, and insurance out of the income she has received from the tenant.

With a net lease agreement, the tenant will pay the monthly agreed rent, plus an installment towards the utility costs of, for example, $250 per month. All outgoings (utility bills) for that property will be paid by the managing agent from the utility cost installment received from the tenant, and the full rent amount is paid into the owner’s bank account. At the end of the twelve-month period, the managing agent reconciles the bookkeeping for the property by adding up all associated costs the property incurred over the year, deducts the total of the utility installments that the tenant has paid, and either charges the tenant the deficit, or credits them any overpaid amount.

The owner and tenant negotiate the preferred lease type at the start of the tenancy. Some owners are hands-on, and prefer to monitor and pay their property’s outgoings themselves. Either way, the owner receives a monthly bank deposit and a monthly statement from the asset manager.

Invoicing And Statements

For the net lease option, Jessica and Melanie are responsible for checking all utility invoices, paying them on time, and then reconciling them both monthly and annually. Bawdens Industrial has a sophisticated computer system that cross-checks invoices as they are entered into the system and notifies the staff if an invoice has already been paid. For overseas owners, or for particularly large properties, the girls also manually check the invoices as they receive them.

Bills are paid three times a month. Before payments are sent, a computer report is generated, and each senior manager checks the invoices that belong to their client portfolio. For example, they manually check to ensure that an invoice that was paid on the 7th is not being paid again on the 15th. If there is a discrepancy, they stop the payment run and delete the duplication from the run.

Vacating Tenants

There is a strict procedure that tenants vacating a property must adhere to. Clauses previously agreed to in the lease, clearly state the tenant’s obligations when vacating the premises. The tenant must ‘make good’ and put the property back to the way they found it. That means the tenant may have to remove structures and installations they have installed, plus conduct a thorough cleaning. After this is done, the girls go and inspect the property, compare it to the photos that were taken at the start of the lease, and carry out a plant and equipment check. This means ensuring that the air conditioning unit and the motors and rails of the roller door have been serviced. Receipts for these are added to the property file.

Some tenants are happy for the managing agent to attend to this ‘making good’ and to pay for it from their bond. Others prefer to take care of it themselves, but there are strict rules in place, and the agent must check that quality paint and workmanship have been used, that floors and floor coverings are correctly cleaned or replaced, and that all receipts for the work are on file.


 

Lillie Cawthorn, author of the bestselling book The Money Factory: How Any Woman Can Make An Extra $30,000 To $100,000 Passive Income wants to share her wealth of knowledge easily and effortlessly with you for FREE. Start your journey now to greater wealth through passive industrial real estate income and capital appreciation with one, or all, of these FREE offers:

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