What to Look For in Capital Asset Management Software

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Real estate investment is a high stakes game. Growing and maintaining profits is critical to the long term operating success of your property portfolio. It is often the key metric real estate executives focus on.

Understanding how individual components drive profitability used to be a monumental challenge. Analyzing operating costs such as labor, energy efficiency and capital expenditures took extraordinary effort and specialized resources. Data on rents and market values was virtually non-existent. Today, it can still be difficult to understand—but technology is driving great improvements.

To address this challenge, the industry has become increasingly technology- and data-driven. Today, big data is coming to the forefront of analysis. Management software and building data analytics are helping real estate executives understand profitability better. Here’s what you need to know to maximize the performance of your property portfolio.

Be Programmatic

The term programmatic is typically used in digital media. It refers to the use of up-to-the minute data and consumer analysis to create custom advertising for consumers. The goal of being programmatic is to use current, detailed and voluminous data to drive content.

The same approach applies to property data. Many real estate organizations don’t realize that data management is a speed game, too. Organizations who are slow to update data and maintain information lag behind their industry peers and competitors. Their analyses take longer and are less accurate.

Use Data Audits to Assess Your Property Portfolio

Data audits are among the most important ways to understand drivers of revenues, profits and costs. Imagine seeing a high performance sports car pass you by on the road. While many people look at the end result—in this case, speed—it is the sum of the car’s individual components that drive performance. A data audit focused on the following draws a similar parallel:

  • What is the quality and accuracy of your financial and operating data?
  • What are your firm’s data entry processes, especially from manual (paper) sources into internal databases?
  • What data are most analyzed? What data are least analyzed? Why?
  • What data could be more detailed or broken down further?

Data audits are typically a good first step to understanding your portfolio performance. They significantly improve the data and financial analysis process.

Understand How You Treat Capital Costs

When it comes to profits, almost all real estate organizations focus on net operating income (NOI). For those who are not familiar, Income Property Analytics provides a nice definition on their website. In brief, NOI is what remains after subtracting operating costs from gross revenues.

However, NOI typically does not factor in long term capital expenditures. The relationship between long term capital strategies and profitability is often overlooked. Capital planning analysis should reflect the difference between short and long term capital.

Test Your Assumptions

The next time you run a cash flow analysis using software to understand the investment return of a building, ask yourself what assumptions you are making.

Many organizations fail to test or question the underlying data driving their analysis. Some may not fully appreciate the range of those numbers. For instance, rental rate growth is a key figure in discounted cash flow analysis, but many rely on a generic inflation measure to forecast its rise over time. Optimization, Monte Carlo analysis and statistical analysis are all ways to test the range of underlying data assumptions. While these analysis techniques have been around for a long time, they have never been as easy to perform as they are today. The capacity of modern data analysis programs makes it a reality.

The next time your organization wants to talk about the profitability and performance of its property portfolio, make sure you truly understand your data platform and all that it has to offer from this perspective.

If you’re looking for more information on the data strategies above or are interested in more ways to drive profitability for your property portfolio, contact 4tell™ Solutions.

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