As investors, there are opportunities to own property in another state from which you reside. Whether we choose to invest in a different state by purchasing rental properties or inherit a loved one’s property. Therefore, there are many reasons why a landlord would be an absentee owner. Owning a property out of state has its own unique challenges, such as maintaining and managing the property. However, there are solutions to these obstacles, such as hiring a property management company or selling the house. In this article, we will explain what is an absentee owner in real estate and ways to maximize property value remotely.
What is an Absentee Owner in Real Estate?
An absentee owner in real estate describes an individual who owns a rental property in a state or area where they don’t live. The method of absentee ownership allows investors to diversify their investments, collect passive income, and wait for the property to increase in value. Owning investment property in a different state is a growing trend. Having the capability to find services online has made absentee landlords possible. Owners within a different state can research online local property managers and skilled tradesmen to handle any task. However, there are risks associated with being an absentee owner. Therefore, weigh out the pros and cons of this investment option to determine if it’s the right fit for you.
Challenges Absentee Owners Face
Owning a diverse real estate portfolio can be lucrative. However, there’s a long list of potential obstacles an absentee property owner may face. Some of these challenges involve financial issues, while others may involve legal compliance. Therefore, to best prepare homeowners for the risks associated with being an out-of-state landlord. We compiled an absentee owner list of potential challenges.
- Maintaining the property. One of the biggest challenges of owning a non-owner-occupied property or rental property in a different state/area. Ensuring regular inspections and maintenance tasks are conducted. To minimize issues from becoming expenses and overwhelming, it’s suggested to complete any repairs immediately. Additionally, as a homeowner, you should inspect your property at least four times a year when the seasons change. If you live out of state, consider hiring an individual to oversee this aspect of real estate investing to save yourself money down the road.
- Tenant screening and placement. The best way to get a feel for an individual is by meeting them in person and having various discussions. When owning property in a different state, you usually don’t have the chance to meet and screen the tenants. Therefore, trusting a property manager to place a qualified tenant can be challenging. However, a property manager has the experience and tools to conduct a background check. Along with getting a feel for how the person conducts themselves.
More Challenges as Absentee Homeowner
- Legal Compliance. Most cities have rules and regulations when it comes to rental properties. Therefore, most places require a rental license and other legal compliances, such as proper zoning.
- Missed Financial Opportunities. The best way to understand a real estate market is by experiencing it firsthand. If you own a property out of state, you may not see the daily changes within the neighborhood. Drastic changes happen so fast in real estate, with the demolition and construction of buildings constantly happening. Therefore, owning property out of state may lead to missed financial opportunities. Since the landlord didn’t see the curve in the rental market.
- Property Security. Being an absentee owner, it’s difficult to keep a close eye on your property. Therefore, hire a security system or consider building a close relationship with neighbors so that they can keep a close eye on your property, preventing theft and vandalism.
- Lack of communication with tenants or property managers. At times, it gets difficult to stay on the same page as others when living in a different state. Avoid this issue by giving tenants your contact info and checking in with the property manager on a weekly/monthly basis.
Solutions and Options for Absentee Owners
It’s a growing trend for individuals to own and manage property out of state. Therefore, other landlords found solutions to these challenges of being absentee owners. Utilize the tools provided by other absentee landlords to find quick and reasonable solutions to any common challenges. Below are options for absentee owners based on other landlords’ trials and errors.
- The best option when owning a property in a different area in which you reside will be to hire a property manager. These individuals are pros at finding, qualifying, and placing renters. A property manager oversees all duties, from screening tenants to collecting rent, and even handling everyday questions and concerns. On average, these property managers charge a standard amount of 8% to 12% of the monthly rent collected. Furthermore, keep in mind that the services of a property management company are a tax-deductible expense. Therefore, to keep operations running smoothly, hire a property manager and use their services as a tax write-off.
- Similar to hiring a professional to oversee daily operations, make your life easier by utilizing technology. Consider placing a lock box on the property; tenants tend to lose their keys, and instead of traveling to unlock the door, these individuals have the key available by entering a code. Use security cameras to protect your assets while providing your tenants a sense of safety. Lastly, utilize rental apps such as Buildium to complete tenant background checks, collect rent, and to keep a financial record of your expenses and work completed in the home.
- Conduct routine inspections, whether it’s through a property manager or a home inspection company. Furthermore, some companies offer ways for an owner to oversee things remotely, whether through a detailed report or a video walkthrough of the house.
- Consider working with a realtor. Depending upon your needs, a realtor can place a qualified tenant, although a property manager can handle more of the daily tasks.
- If it’s too challenging to own property in a location where you do not reside, weigh out your options, even if it’s selling the investment property.
When should an Absentee Landlord Sell Vs. Hold?
It’s common for an absentee owner to run into obstacles. However, everyone has a breaking point when things become too overwhelming. Therefore, as an absentee owner, you must understand when to continue holding/owning the property and when it’s an appropriate time to sell. One major indication to hold or sell your rental is based on current market trends. It takes time for a real estate market to make a complete turn. However, examine the recently sold properties in the last 180 days within a short distance of your house to receive a feel for the direction of the market.
Overall, property condition is another aspect to think about when considering keeping or selling your absentee rental property. Furthermore, as home repairs pile up, it continues to decrease the home’s value. Therefore, if your tenants are slowly destroying the property, the best solution will be to sell the house and move on with life. Additionally, if rentability and rental rates decrease over the course of the year, it’s an indicator of further risks involved with holding the home. Lastly, most properties appreciate while the owner continues to build equity. Therefore, if it’s becoming difficult to own an absentee property. Speak with an agent to determine if it’s the best time to sell the home or hold the property and continue rental operations.
Is it Profitable Being an Absentee Owner?
Owning a rental property is similar to owning a business. Furthermore, there are endless risks associated with these rental homes. However, if approached correctly, rental properties can be rewarding. To be a successful absentee owner, you must hire a pro to oversee the daily operations, such as collecting rent, hiring contractors for necessary repairs, and handling any tenant concerns.
As we mentioned, the expense of hiring a property manager is tax-deductible, so it’s highly recommended to utilize these pros to run the show while you sit back, benefiting from being an absentee owner. Furthermore, use the tips provided in this guide to successfully run a rental property business out of state. If you have any questions about the process of being an absentee owner or have an interest in selling your house, then feel free to reach out to our family-owned real estate company!