What is an absentee owner?

If you’re looking for a way to invest in real estate but don’t want to spend time on the daily management of a property, absentee homeownership may be worth exploring. As an absentee owner, you can invest in a property without the responsibilities of living in or managing the home. This passive real estate strategy offers both advantages and drawbacks to consider carefully.

We’ll dive into what it means to be an absentee owner so you can decide whether this approach aligns with your unique financial goals.

How absentee ownership works

Absentee ownership is when an individual or group of investors owns the property but doesn't manage it or live in it. This applies to both commercial and residential real estate. It also applies to single-family homes and multifamily properties.

They might have inherited the house after the previous owner passed away and outsource the day-to-day operations to a property manager or property management company. Or maybe they purchased the property as a vacation home and only live there part of the year. They could also be investors in real estate investment trusts (REITs).

Some owners may live out of state or overseas and purchase the home as an investment property. In that case, they're a non-resident landlord, which is an individual or entity who owns a rental property in one country and spends at least six months living in another country. 

A property manager tends to the responsibilities and operations of rental properties. You can think of them as the intermediary between the tenant and owner. They can do everything from listing vacancies, collecting rent, processing security deposits, and tending to the maintenance of the property.

Key differences between an absentee owner vs. owner-occupant

Let's look at the handful of differences between these two ownership types:

• How they’re financed: Owner-occupants usually qualify for FHA, VA, USDA, and conventional loans, which usually have lower rates, lower down payment requirements, and better terms than financing that's available for absentee owners.
  
  Absentee owners usually need to seek financing from investment property loans, portfolio loans, or cash-out refinancing. These usually have higher down payment requirements, higher rates, and less favorable terms.
• Taxes: Owner-occupants can deduct mortgage interest and property taxes as their primary residence. As a rental property, absentee owners can deduct rental income, depreciation, and rental expenses.
• Active management: Owner-occupants usually handle the daily maintenance and upkeep of the property. Absentee owners typically outsource these responsibilities to a property manager or property management company.
• HOA regulations: If the property is part of an HOA, such as in a family of condos or planned unit development (PUD), the HOA may issue a rental cap, which limits the number of homes in the community that can be rented at any given time.
• Further, depending on the association, HOA rules may have a lease waiting period, which means they have to occupy their unit for a set amount of time before they can lease it.
• Emotional attachment: Whereas owner-occupants might invest more in making a home unique and have attached sentimental value to it, absentee owners may be less likely to bear emotional attachment. In turn, they might be looking at a rental property purely as an investment.

Real estate investing strategies for absentee owners

If you think being an absentee owner fits with your financial goals, this way of investing could contribute to your real estate portfolio.

To help you decide whether it's a good choice for you, let's go through the potential advantages and drawbacks of this option:

Pros and cons of absentee homeownership

Let's look at some of the potential pluses of absentee homeownership:

Pros

• Geographic freedom: When looking for properties to purchase, you can look at different parts of the country or even overseas.
• Passive income: Investment properties can bring in passive income from rentals. This additional revenue stream can help you with your financial goals.
• Relocation: Should you want to move one day and relocate for work or to be closer to family, you have that option if you're an absentee homeowner.
• Estate planning: You might want to buy a rental property for your heirs to inherit after you pass away.
• Second home: If you live in a different part of the country or overseas, you might want to buy a property as an absentee homeowner and live there only during part of the year.

Cons

Now, let's look at some downsides of being an absentee homeowner:

• Less control. Because you're more hands-off on managing your property, you'll need to rely on the property managers to tend to the day-to-day operations and maintenance of the home. You aren't there to see what's going on, so a strong relationship built on trust is key.
• Property management costs. While you can earn passive income from a rental property, the cost to hire a property manager can be anywhere from 8% to 12% of the monthly rent. During periods where a rental property might have a vacancy, you'll be paying the company for putting up listings and showing the property – without collecting any rent money.
• Risk of vacancy. Should the property be without a tenant for a period, vacant property ownership can be expensive. According to data from the U.S. Census Bureau, national vacancies for rental properties hover at 7.2%.
• Risks of taking on an additional mortgage. If you're taking out an additional mortgage to purchase a rental property and aren't able to keep up with your monthly payments, you might face late fees, damage to your credit score, and defaulting on your mortgage.

How investors can find absentee owners

When it comes to real estate investor strategies, buying a property from an absentee owner to potentially become one yourself can be an attractive option.

Absentee owners may be motivated sellers. They might also be more likely to view homes more as investment properties rather than having symbolic meaning or having an emotional attachment to them. In turn, absentee owners may be more inclined to sell if the timing and the offer work for them.

Here are some ways you can find out who owns a property and if they're a potential absentee owner who wants to sell:

Prospecting neighborhoods

If you have the resources to do so, visit locations that interest you. Not sure where to start? Consider places that are included in the "best of" lists of places to invest in real estate.

Properties for rent or for sale that have been listed and vacant for at least a month may be a sign that the owner is having trouble landing bids, they aren't actively seeking a renter, or the home is in financial distress.

Researching tax records

A good place to start researching tax records is the local county assessor's tax office website. If the owner's address is different from the property address, there's a good chance there's an absentee owner. The tax office might have an online database. Some offices require you to open an account, and there may be a fee to access information and records.

When searching public records, you might come across an involuntary lien on a property, which can stem from an unpaid debt. In this case, the owner might be more willing to sell their home to pay off outstanding debt.

Scanning rental listings

You can check rental listings of areas where you'd like to buy properties to see if there are any that are posted by absentee owners. While this isn't exactly the most direct way to purchase an absentee-owned property, if a home has been vacant for a good while, the property owner might bite if you extend an offer.

Using digital resources

Local real estate online groups and real estate databases are easily accessible platforms to start.

To help you narrow in on absentee owner listings, you might try out specialized real estate data platforms. For instance, these companies can tap into AI and data analytics and apply filters such as different mailing and property addresses, which can clue in on absentee owner data and provide you with a list.

Working with REALTORS^® or real estate agents

REALTORS® are real estate professionals that are members of the National Association of Realtors® (NAR) and can include real estate agents, real estate brokers, and property managers. They commit to adhere to high standards of conduct and a strict code of ethics.

By working with a REALTOR® or real estate agent in an area where you want to hunt for investment properties, you can tap into their resources and expertise. For instance, they have access to databases and tools that can home in on different criteria and compile lists of absentee owners for you. Once you have these lists on hand, you can carefully comb through them to see if there are any strong leads to start your search.

The bottom line: Try working absentee ownership into your investment strategies

If you're considering being an absentee owner and investing in rental properties, it can boost your passive income streams and possibly mean portfolio growth.

Before jumping in, you'll want to understand what absentee ownership entails and the main differences between absentee ownership and owner-occupied. That way, you can feel confident about your decision.

If you’re ready to buy a home, you can reach out to Rocket Mortgage to see today’s rates and begin the preapproval process.