Absentee owner: A guide for real estate investors

If you’re looking to get started in real estate investing, have you considered absentee ownership? An absentee owner owns a property, but doesn’t live there or manage it. Or they own a business, but aren’t actively involved in its day-to-day operations. In short, it’s a hands-off investment approach.

Let’s look more in-depth at what it means to be an absentee owner, including its pros and cons, and whether this passive real estate investment strategy is right for you.

What is an absentee owner?

An absentee owner is an individual or a group of investors who own a property without occupying it or participating in its day-to-day management. The hands-off approach to managing a property is what distinguishes absentee owners from real estate investors who actively manage their investments.

Here are a few common examples of absentee owners:

• Out-of-state owners
• Investment property landlords and owners who use third-party property management companies
• Homeowners who inherited property
• Landlords with a gap in tenancy
• Property owners on military duty
• Commercial real estate owners or real estate investment trust (REIT) investors

A real estate investor invests capital and buys a property to get a return on their investment by renting or selling it. Residential real estate investment options include single-family homes or multifamily properties investors intend to rent to tenants.

Commercial properties, like shopping malls and strip centers, are popular REIT investment properties because investors plan on owning the properties long-term. Commercial leases can be lengthy and lucrative in high-traffic areas and provide high investor returns.

Real estate can be owned and managed by an individual, a corporation or a REIT. Passive real estate investing takes many forms. REITs and absentee ownership are some of the most common passive strategies for investors who want to build their real estate portfolio without the day-to-day responsibilities of property management.

Pros and cons of absentee homeownership

Being an absentee owner has its advantages. Absentee owners don’t have to limit themselves geographically if they have a system in place and support to manage the daily operations of a property. The owner or investor can focus on acquiring assets instead of day-to-day property management.

An absentee owner can maintain their property by hiring a third-party manager or management company. The property management company handles tenant leasing, accounting, maintenance and repairs. Hiring a reputable third-party property management company can be vital for real estate investors who want to grow their property portfolio. A good property management company will work to maintain or increase a property’s value.

Even if an owner is confident their property is in good hands, they still need to play a role in the management process to be successful. The owner or real estate investors should visit their properties in person to verify the management company is fulfilling their duties and scope of work to their expectations.

Deferred maintenance or disgruntled tenants are issues that can quickly lower a property’s value. If you own properties in different parts of the country, be aware that each property will face specific challenges related to weather, geography and the local real estate market.

Property ownership can come with risks and associated liabilities. There are local, state and federal guidelines property owners must follow or risk fines or even having their property condemned.

Why are absentee owners important for real estate investors?

Absentee homeowners come into property ownership through many different ways.

In the case of inheritance, a homeowner passes away, and their spouse or heirs become responsible for the property. In some cases, they’re responsible for past due or ongoing mortgage payments, taxes, utilities and general maintenance. For many families on a budget, an inherited home may be a liability, not an asset.

Many absentee owners have simply grown tired of maintaining a property because being a landlord requires an incredible amount of time and effort to turn a profit.

Frequently, these properties were acquired because they were in financial or physical distress. The owner may have had good intentions at first, but eventually, the cost and effort began to take a toll. This well-known fatigue is why many real estate investors consider some absentee owners potentially motivated sellers.

How to find absentee owners

If you’re a real estate investor looking for potential rental properties, here are some ways to find absentee owners who want to sell

Prospecting neighborhoods

If you’re a real estate investor or an aspiring one, visit the locations that interest you.

A growing handful of cities are considered great places for real estate investing. A home that looks like it's been vacant a month or more is a promising sign that the owner isn’t actively looking for a renter or the home is in financial distress.

Researching tax records

Your local tax assessor's office is a great resource for property information and an owner’s contact information. Most absentee owners live at a different primary residence, so they’ll likely have a different mailing address from the property you’re interested in. The tax office may have a searchable online database. Some offices require an account and charge a fee for information and records.

Call your local assessor’s office to learn how to search their database and receive guidelines on any rules of etiquette to follow.

Scanning rental listings

Search listings for local rentals that have been vacant for a month or more. Landlords typically need to lease their spaces quickly to generate money to cover their operating expenses. If the property is priced too high or is in obvious disrepair, the landlord is likely struggling to find a tenant and may be motivated to sell.

Landlord fatigue can reflect in a property’s appearance. Owners or landlords may need additional funds to revamp their property – or they may be interested in an exit plan. Either way, reach out to the property owner and tell them you’re interested in their property. Reaching out can open doors to a range of possibilities.

Using absentee owner lists

Some companies do all the heavy lifting and compile lists of absentee owners based on several criteria. These lists vary in cost and quality – and the investor has to put in the work and contact the leads.

Many licensed real estate professionals have access to database tools that can run reports based on address, equity in the home, length of ownership, etc. Working with a REALTOR^® in the area where you want to invest can be a great way to begin your search.

When prospecting, collect as much information as you can about a property and its owner. Once you have a list of prospects, it’s time to evaluate them to confirm whether they’re strong leads.

Cold calling and direct mailing

Cold calling is a quick and efficient way of determining whether you have the correct owner and if they want to sell their property. You can gather a lot of information over the phone about the neighborhood and its residents. And since you’re already talking, ask the homeowner if they know whether anyone else in the area is interested in selling their property. If the property owner is plugged into the community, they may be able to give you a promising lead.

Direct mail is another great way to contact property owners. Sending a letter or postcard expressing your interest in their property may begin a dialogue with someone considering selling their property. Identify the property you’re referring to if they own multiple properties, and tell them everything you’re willing to do.

The bottom line

There are many forms of passive real estate investing. Take your time to consider which method fits your lifestyle and your budget.

Before you buy real estate for investing or otherwise, get advice from licensed real estate professionals. Knowledgeable REALTORS^® can help you navigate tax records and other property details to find the right house, and they can provide vital information about a local real estate market.

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