Property and Asset Management
Roles and Responsibilities
Property management executes operations for an owner; asset management sets strategy across a portfolio. Candidates should distinguish the management agreement's scope (services, authority, fees, reporting, termination), the owner's objectives (income, appreciation, risk), and the property manager's fiduciary duty. Understand the management plan: market analysis, budgeting, staffing, maintenance scheduling, and reporting cadence. Know key metrics - occupancy, effective gross income, net operating income (NOI), operating expense ratio, and capital reserve funding - and how they drive asset value through capitalization.
Traps to watch
- NOI vs. cash flow: NOI excludes debt service, income taxes, and capital expenditures; cash flow includes them. Questions often tempt you to subtract mortgage interest from NOI - don't.
- Gross vs. effective income: effective gross income nets vacancy and collection loss plus other income; gross potential rent does not.
- Management fee basis: fees are often a percentage of collected income, not potential rent; read the clause.
- Reserves: replacement reserves are typically funded from operations but treated as a capital item; confusing them with operating expenses misstates NOI.
Rule of thumb
Value ≈ NOI ÷ cap rate. A small NOI increase or cap-rate compression produces a leveraged value change, so operational improvements matter disproportionately.
Worked example
A property has gross potential rent of $1,000,000, vacancy and collection loss of 8%, other income of $40,000, and operating expenses of $420,000. Effective gross income = $1,000,000 − $80,000 + $40,000 = $960,000. NOI = $960,000 − $420,000 = $540,000. At a 6% cap rate, value ≈ $9,000,000. Note that debt service is excluded from NOI.