UPDATED: Jun 2, 2023
Absentee ownership offers a passive role in real estate investing. For real estate investors or homeowners who want to build their portfolio, being an absentee owner lets others live in or manage a property for you.
Let’s dive into how absentee ownership works, the pros and cons and whether it’s the right investment opportunity for you.
An absentee owner refers to a person or corporation that owns residential or commercial real estate without actively managing or residing in it.
Absentee owners are often highly sought out by real estate professionals and investors because they’re often motivated to sell their vacant properties. Absentee owners can include:
The term is primarily used to distinguish between property owners who are hands-on with their investments versus owners who are largely hands off.
If you buy a rental property and manage the maintenance, rent collection and other day-to-day tasks, you are simply a real estate investor and a hands-on landlord. And you can live on the property as well.
But if you buy a property and take a hands-off approach to managing it by outsourcing those tasks to a property management company or other employees, you are an absentee landlord.
Another term related to absentee ownership is real estate investment trusts (REITs). REITs allow individuals to invest in large-scale, income-producing real estate. Rather than develop real estate properties to resell them, REITs usually invest in buildings and manage operations as part of the investment. The properties can include shopping malls, apartments, hotels, self-storage facilities and warehouses, just to name a few.
To make things a little clearer, it’s important to note that absentee ownership in residential rental properties is different from corporate absentee ownership.
A corporation may manage several properties all over the country or the world, working to maximize profits for a number of investors or company stockholders.
In contrast, absentee business owners who work with residential properties tend to be individuals who don’t live close enough to their investment property to actively manage it. They may live in the same city or on the other side of the world, but for whatever reason, they logistically can't or don’t want to manage the properties they purchased for investment purposes.
Individual absentee owners often use a third party to manage their properties. There are a number of property management companies to choose from, no matter the property location.
It can be. In fact, some real estate agents and prospective buyers seek out absentee owners when buying a commercial or residential property.
Buying from an absentee owner can be a great investment if they’re a motivated seller. Why? Well, here are a few common reasons:
Since absentee owners represent an opportunity for real estate agents and investors, they use several tactics to find them to see if they’re willing to sell, including:
Becoming an absentee owner to help diversify your real estate investments or to get into the real estate investment space for the first time can be very appealing. That said, owning and managing the property yourself presents its own set of benefits as well.
Like all things, there are different challenges with each approach. Let’s look at a few key pros and cons of absentee ownership with a keen eye toward factors that can affect your potential revenue when comparing passively renting properties versus actively managing them.
If you’re hoping to become an absentee owner and rent out your property to tenants, you must carefully consider your plan of action. Here are some tips:
Absentee ownership can seem like a great way to make passive income without too much day-to-day work. Are you imagining yourself sipping an umbrella drink on a beach or spending time with your family as the money rolls into your checking account? While that certainly can happen, setting up the right plan and effectively implementing it is the only way to increase your chances of getting there.
And remember, things can go south, too. Lack of communication, not finding the right people to help you manage your property and getting into markets you don't understand can result in a ton of headaches and not enough income. To set yourself up for success, rely on experts, make a plan and stick to it.
Ready to take the next step in real estate investing? Get started online with Rocket Mortgage® to see what you qualify for.
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