Slumlords, broken windows, overgrown weeds, unhappy renters… are these what come to mind when you hear the words “absentee landlord”?
The term can have a negative connotation. Some believe it’s impossible to be a good landlord without being reachable at all times.
In reality, “absentee landlord” isn’t a dirty expression. It merely means a landlord who is not physically present in the same geographic area.
Living in another city, state or even country doesn’t automatically mean dilapidated buildings and mistreated renters. In today’s global economy, it has become possible to own income properties elsewhere and still be an effective landlord.
Absentee landlords are becoming the norm in the 21st century age of globalization and technology. As it gets easier to buy property outside the local area, investors are going where there’s the most money to be made.
Are you ready to buy elsewhere to maximize your return on investment? Here are our best tips on how to be an effective absentee landlord.
First, Know Your Responsibilities
Before bidding on an apartment building in the next state, find out what their state landlord-tenant laws are like. Which rules are you bound by? Are there any restrictions you need to know about?
Physically present or not, landlord responsibilities include providing a safe living environment to all tenants. Code and safety violations, for example, can have serious consequences. Tenants could file a complaint, stop paying rent and then sue the property-owner.
The only way to meet all of your responsibilities as a landlord is by knowing what they are ahead of time.
Use the Proper Legal Forms
When you’re not around on a regular basis, using the right landlord forms can be your saving grace. Using state-specific lease agreements, disclosures and tenant notices helps you avoid countless potential costs and problems. For example, most states have specific limits on security deposit amounts – that means not just using a state-specific legal forms, but using tools that help you understand the state’s laws. (Not trying to toot our own horn here, but if you’re not an expert on a given state’s landlord-tenant laws, make sure you use a service like ours that will provide guidance in addition to state-specific legal forms.)
If you live far away from your rental property, you’ll need to find a way to keep your ear to the ground and know what’s going on in your absence. The best way to do so is by hiring a property manager. They can take over the daily and monthly tasks for you. Most companies offer services which include collecting rent, issuing notices, advertising units, finding new tenants and signing new lease agreements. Managers can stay on top of maintenance, making sure your building is always in good condition. Some larger companies will also offer bookkeeping help and bill payments.
The biggest advantage of using a property management team is having someone to keep an eye on your investment. If tenants aren’t taking care of the property, your manager can take action. They can also be the ones who get the middle-of-the-night phone calls when a toilet leaks.
When investing outside your immediate area, you should include the cost of local property management into your financial projections. If a property still gives you good return on investment after the cost of your manager, both you and your tenant will be better-off (read more tips here on how to invest in new real estate markets.)
Absentee Doesn’t Mean Ignore
Being an absentee landlord doesn’t mean ignoring your properties. Even with property management help, you’ll still need to keep an eye on the manager’s performance and make sure they’re paying adequate attention to your rental investments. Keeping in touch with your manager is important, as is reviewing the finances on a regular basis.
A bit of supervision can avoid more serious problems down the road. Imagine your property manager has fallen behind on bill payments and didn’t pay the insurance premiums on your rental. And then there’s a flood. Or your manager doesn’t follow the fair housing laws well enough and lawsuit papers start flying. Guess who will also be named in the lawsuit?
As the property-owner, the ultimate responsibility comes back onto you. You need to protect yourself and your real property investments. Supervision can mean catching potential issues early.
Advantages of Not Being a Local
There are several advantages of being an absentee landlord. You can focus on municipalities that offer the best rates of returns, the best landlord laws or the best property taxes. You can be better diversified, as you can purposely buy properties in different states. You’re less susceptible to local economy crashes if all of your rentals aren’t in the same city. And hey – you can live on a beach somewhere sipping daiquiris if you want.
Living out of state lets you focus on the big picture – your real estate portfolio – instead of the day to day headaches of being a landlord. Like clogged toilets.