ianc1990,
Update Manager is part of the vCenter Server install. The documentation can be found here: vSphere Update Manager Documentation. Basically it just requires a small database and a bit of disk for storing the patches and updates. On the documentation page is a sizing calculator to determine how much you will need for your environment. Once it is installed though, it makes updating and upgrading your hosts pretty painless. You just add the plugin to your vCenter client, and you will see a new tab for Update Manager. From there you can scan your hosts to see what patches you need and apply them. You can also upload the ISO or ZIP images for vsphere and use that upgrade your hosts. As for the issue that you are having though, I am not sure. I would have to play around a bit with the image builder first (haven't used it before) to determine what needs to be done to make a custom ISO for installing.
Regards,
KWohlgemuth