What Is an Absentee Owner?
An absentee owner is an individual or corporation that legally owns a particular property without actually occupying it or actively managing it. The term absentee owner is intended to distinguish between property owners that are hands-on with their investment versus those who are largely hands off.
Technically, an individual can be considered to be an absentee owner simply by owning a piece of real estate without living in it, but this describes a majority of absentee landlords as well as most real estate companies and real estate investment trusts (REITs).
- An absentee owner describes the owner of a property who does not reside in or otherwise occupy that property.
- Individuals or businesses may be absentee landlords that owns and rents out real estate but is not physically located at or near the property.
- Benefits of absentee ownership include greater diversification of a real estate portfolio, but on the downside can be more costly to maintain and require reliance on third-party property management.
Absentee Owners Explained
Absentee owners are in real estate for the capital appreciation and the rental income, particularly when it comes to corporate absentee owners. Corporate absentee owners tend to own commercial property and use property management firms to keep the tenants happy. This hands-off approach keeps the company from being bogged down in day-to-day property management and allows the company to focus on finding or building new investment properties.
Absentee owners generally look at real estate from an investment standpoint only and may contract out all management duties to a third party, as in a property management company. Absentee owner can describe a real estate investor with one condo in a different state from where they live, or it can describe a corporation that owns shopping malls and apartment buildings all over the country.
Absentee Ownership and Residential Rental Properties
Absentee ownership in residential rental properties is a different situation than corporate absentee ownership. These tend to be individuals who do not live near enough to their investment property to actively manage it. They may be in the same city or they may be in an entirely different part of the country or world. These individual absentee owners can also choose to use a third party to manage their properties.
That said, there is often a challenge in making certain the management company is doing its job. Without a management company, absentee owners have to periodically check in on their properties, and this can lead to problems when tenant oversight or the property itself is neglected. The challenges of absentee ownership make these properties a target for other real estate investors who see absentee owners as potential motivated sellers. Consequently, some real estate investors compile lists of absentee owners as leads for property deals.
Pros and Cons of Absentee Ownership
Absentee ownership on the corporate and individual levels share some advantages and disadvantages.
The advantage of absentee ownership is that a real estate investor can look for the best properties available without restricting the search to their nearby area or geographical region. Moreover, once a management system is in place for the properties, the portfolio of properties can usually be scaled up quicker than an actively managed one can.
On the downside, absentee owners depend heavily on their property managers and that relationship can make or break an investment, as a toxic management company may lose an absentee owner good tenants and rental income before the owner realizes what is going on.