Usually, when people think about becoming a landlord, they plan to buy an investment property not too far from their own home. However, if long-distance investing is more your style, there is another option. You can become an absentee landlord. With that in mind, read on to learn more about being an absentee landlord including what it is, the pros and cons, and the best practices that you need to know before getting started.
What is an absentee landlord?
As the name suggests, an absentee landlord is another name for a landlord who does not take an active role in managing the property. Rather, this type of landlord hires a property management company to handle the day-to-day aspects of keeping their rental property up and running. Typically, these landlords are also long-distance investors who do not live in the area where the property is located.
It's common to see absentee landlords when you're talking about vacation homes. However, absentee ownership is not necessarily limited to homeowners or even small-time investors. In fact, this type of ownership and management style is even more commonly seen with commercial properties. Frequently, commercial real estate investors seek to diversify their portfolios by investing in apartment complexes, retail centers, or office buildings in different states and cities across the country.
What are the benefits of being an absentee landlord?
If you're thinking about becoming an absentee landlord, you may be wondering what the benefits are to taking this approach to property management. In truth, there are a few unique benefits to managing rental property from afar. We've laid them out below for your consideration. Read them over so that you can decide whether or not this might be a good investment strategy for you.
You can diversify your portfolio
As mentioned above, the primary benefit of following this strategy is it gives you the ability to diversify your portfolio. The truth is that not every real estate market is going to be strong at the same time. With that in mind, by making an effort to invest in different markets, you can try to insulate yourself from a downswing. In all likelihood, when one market is slow another might be speeding up.
You can take a (mostly) hands-off approach
Another benefit is that long-distance investing allows you to take a hands-off approach in managing the day-to-day operations for your income property. Since you won't be right around the corner, you likely won't get a call in the middle of the night if the basement floods or the air conditioning breaks.
In this case, as long as you have someone local who can handle any maintenance issues, you get to sit back and collect your money without much effort on your part.
There might be a few tax benefits
Lastly, there may be some small tax benefits to buying an investment property that isn't in your neighborhood. Namely, if you have to travel to visit the property, you have the option of writing off these costs as a business expense when it comes time to file your yearly tax return.
What are the risks of being an absentee landlord?
With that said, becoming an absentee landlord is not without its risks. Obviously, It's going to be harder to keep tabs on a property if you don't live right around the corner. To that end, if you are thinking of going this route for your investment strategy, be sure that you understand the level of risk associated with this decision. We've laid out a few of the risks below for your consideration.
Potential issues are harder to spot
The biggest risk of being an absentee landlord is missing potential problems when they occur. On the one hand, it's easy to miss maintenance issues like roof leaks or plumbing problems if you're not regularly checking in on the property. However, on the other, it's also easy to miss out on potential problems with your tenants, including disruptive behavior or late rent payments.
You have to make an effort to keep up with the market
As mentioned, every real estate market has ebbs and flows. It's likely the property values in the area where your rental unit is located will change over time. However, it's much easier to keep up with those changes if you are actively involved with the upkeep of the property. To that end, if you're going to be an absentee owner, you need to make an effort to keep on top of local neighborhood trends.
You cannot vote in local elections
As the property owner, you're going to be responsible for following the rules of the city or town in which your property is located. However, if you don't live in the area, you won't have voting rights and won't be able to have a say in any of the laws. Additionally, depending on how common absentee ownership is in the area, sometimes the local residents will pass legislation that makes it harder to manage the property from afar.
Your property may be more vulnerable to criminal activity
As an absentee landlord, your property might be more vulnerable to criminal activity. This is especially true if your property is vacant some of the time, as is the case with many vacation properties. In particular, your investment property might be susceptible to break-ins where people cause damage or even stay in the property without your knowledge.
Best practices for absentee landlords
Now that you know the pros and cons of being an absentee landlord, you can decide for yourself whether the risk is worth taking. If you decide you might want to go this route, there are some best practices to follow. To that end, below are some of our best tips for making your absentee ownership a success.
Familiarize yourself with local landlord-tenant law
As you likely already know, landlord-tenant laws are often decided on a state or local level. With that in mind, as a landlord, you are going to be beholden to the laws that govern the area in which the property is located. You should do your best to familiarize yourself with them so you can ensure that you are compliant with state law at all times.
Hire a local property management company
When you're an absentee landlord, one thing that you absolutely cannot be without is a local property management company. Put simply, you need to have boots on the ground in the event that there is a plumbing leak in the middle of the night or there is a disturbance at the property. Your property management company will be your eyes and ears and will ensure that your investment stays safe.
Keep in regular contact
That said, even if you have a great property management company in place, you're still going to want to keep in regular contact with them and your tenants. Keeping in regular contact will ensure that you are able to address problems quickly before they become serious. Do your best to make checking in a regular part of your schedule.
The bottom line
Though becoming an absentee landlord does have its benefits, it is not without its risks. Like any other investment decision, you need to weigh the pros and cons in order to decide whether a long-distance buy-and-hold strategy is a good fit for you. If you do decide that you want to give it a shot, use this post as your guide. Armed with this knowledge, you should be able to know what you need to do to get started on the road to absentee ownership.