Property management adds value to investment

Property managementAmeen Al Qudsi, CEO, Nationwide Middle East Properties LLC

In this case, it would be worth considering enlisting the services of a property management company if you want to add or maintain the value of your investment. And while factoring in market presence, accreditations and portfolio in the decision-making process greatly counts, there are other facets of PM that one needs to understand and which Ameen Al Qudsi of Nationwide Middle East Properties discusses here.

What PM entails
PM is about managing a property owned by another party. The primary responsibility of any real estate manager (REM) is to develop short and long-term action plans for the property called the management plan. Within the management plan, the owner(s) of the property will find important information such as the current condition of the property, the operational costs/expenses of the property, its current use, if it can be used for any other purposes, future financial projections including capitalization rates and normal operating incomes (NOI) which are good indicators for the owner to continue investing in it or consider selling it, and the best exit strategy for the property/asset.

Problems encountered
The number one problem that most property managers face is the absence of tenant screenings prior to property handover. This can complicate the renewal of lease agreements and affect profit margins. For example, Company A has been awarded a new property management contract by a local asset manager that controls a real estate fund. Within the fund’s portfolio is a series of single family flats of various sizes. The owner has changed the management company because he wants to increase profits for the year which is understandable. However, the owner has changed late in the year and most of the annual contracts have been awarded to the previous tenants at rates below the market value. Not only that, the property manager is also aware that many of these flats have been partitioned to accommodate more than the normal-sized families, which is against the law. This leads to the next problem: lack of routine inspections inside dwellings. Finally, unclear accounting practices, especially for larger properties, can be a nightmare and lead to internal auditing by the owner’s accounting firm or even the government.

Usual clients and costs
We handle residential properties, offices and mixed-use projects. Industrial, retail and shopping malls, developments and land, and resorts are in our medium-term plans. A large percentage of our clients are individual investors followed by asset managers, government agencies, real estate funds and corporations/investment groups. We customize all property management contracts to fit the needs of the property owners. First, we need to fully understand the short and long-term goals of the owner. Then we conduct a market analysis of the property to find out what it is currently worth and the projections for what it may be worth with simple or complex upgrades. Finally, we assign a margin against the property. This information is not always shared with the owner because sometimes we make more against properties that have underperformed in the past and sometimes we make less. So, the amount we charge is part of a lump sum that we offer the owner for an individual property or properties.

Property values
Different firms use different formulas to assign value to a property. Some factors to consider when determining value are Investment Value, which is determined either by calculating the NOI and applying a capitalization rate to it, or from cash flow by determining the ROI; and Market Value, which is the value the property might fetch in a competitive market and whose indicators include the market price index which allows you to see the price trend for a specific type of house in a given neighbor-hood, and comparison analysis, e.g. taking two similar flats in the same building and comparing their rental rates over some history.

Common services offered by PM firms
• Rental rate analysis
• Comprehensive advertising
• Thorough tenant screening
• Leasing, lease enforcement, contract negotiation
• Protective lease agreements
• Tenant move-in and move-out inspections
• Rent collection; facility management
• Budgetary accounting and monthly financial statements
• Evictions and collections
*Nationwide Middle East Properties

Source: Ellen Joyce Soriano, Special to Freehold
The writer is a freelancer 


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