What Is An Absentee Owner And Why Does It Matter In Real Estate Investing?

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.

What Is An Absentee Owner?

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:

• Out-of-state owners or investors
• Third-party property management companies
• Inherited property or rental property owners
• Military homeowners on leave
• Landlords with tenancy gaps
• Commercial real estate investment trusts (commercial REITs)

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.

What’s The Difference Between Corporate Vs. Residential Absentee Ownership?

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.

Is It Easier To Buy Property From An Absentee Owner?

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:

• Absentee owners often grow tired of owning their property, especially if they have problematic tenants.
• They may not be getting the return on investment they want, considering rent amounts or expenses.
• They may be frustrated with new rules and regulations placed on landlords.
• High property prices can often be attributed to an owner’s emotional attachment to their home. Absentee owners are often less emotionally attached. They see the property as an investment, not a family home, so they will often sell for less.
• Absentee owners may be heirs who inherited a property and aren't interested in being absentee landlords.
• There may be new investment opportunities they would prefer to invest their money in.

How To Find Absentee Owners

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:

• Driving around and finding rentals that appear unoccupied or have rudimentary signage advertising rental vacancies. The properties can include short-term, long-term and vacation rental properties.
• Scrolling through sites like Airbnb and Vrbo to find short-term rental listings with owners who may be interested in selling.
• Reviewing the local county assessor's website for tax records and owner information. This tactic can be time-consuming, though. You typically won’t find lists of all the absentee owners, and an owner’s mailing address may not match the property’s address.
• Buying lists of absentee owners in their service area. There are many companies that sell and resell these lists to real estate agents and investors.

What Are The Advantages And Disadvantages Of Absentee Ownership?

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.

Pros Of Absentee Ownership

• Unlimited geography: Absentee owners don't need to live near the properties they own. This geographical freedom allows them to focus on hot real estate markets around the country and even the world, regardless of where they hang their hat. Real estate markets can vary greatly by state, city and even neighborhood, so living where you want without regard to its proximity to your investment properties is appealing.
• Multiple properties: Markets fluctuate based on geography, so being an absentee owner means you can pull investment dollars out of one area into another or buy more properties in a successful area without selling your primary residence to be close to them.
• Passive income: Absentee owners outsource a lot of work, including maintenance, repairs, tenant communications, rent collection and more. Outsourcing offers owners more time to live their lives as they want and where they want. From a business perspective, delegating the management of their investment properties gives owners time to work on other business ventures while they collect income from their passively owned properties.

Cons Of Absentee Ownership

• Hiring people: Finding competent, trustworthy employees and property managers can be a real challenge for absentee owners. When you actively manage your property, you know all the day-to-day decisions are aimed at making the most out of your financial investment. When you put your faith in someone else to take care of your investment, you can’t always be sure they’re working in your best interests. And even if you find the right people to manage your investment properties, you must pay them, which is another cost you’ll incur that will eat into your profits.
• Communication struggles: When you aren't physically located in the same area as your investment property, it can be hard to keep your finger on the pulse of what’s going on. Absenteeism can strain relationships with employees, tenants, local municipalities, clients and business partners.

What Are Some Tips For People Looking To Become Absentee Landlords?

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:

• Work with a local REALTOR^® who can ensure you’ll find the right property at the right price.
• If you need to repair the home before renting it, keep the 70% rule in mind.
• Carefully consider who will maintain the property and the cost of maintenance.
• Never stop reevaluating the investment to determine whether it remains worthwhile.

The Bottom Line: Weigh The Pros & Cons of Absentee Ownership Before Diving In

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.