Landlording & Rental Properties

Landlord or Real Estate Investor: Which One Are You?

Expertise: Landlording & Rental Properties
12 Articles Written
indecision

Is there really a difference between a landlord and an investor? And more importantly, does it even matter?

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Let’s talk about it.

The Difference Between a Landlord and an Investor

Understand: both own real estate—it's four walls and a roof. However, that is where the similarities end and the differences begin. It's the way the business is running inside those four walls and roof that really makes the difference.

Now, your mindset can be your greatest asset, or it can be your worst enemy.

Is there really a difference between a landlord and an investor? And more importantly, does it even matter?Let’s talk about it. To be sure, there’s no right or wrong way to run your business. But it’s important to understand definitions, and it’s important to understand how you want to run your business.

See, a landlord is someone who is trading time for money. They are doing a lot of things on their own. They are a one-stop shop.

They do everything. They do it from beginning, and they do it all the way to the end. Everything starts and stops with them.

Again, there’s nothing wrong with that. But the challenge with being a landlord is you are doing everything on your own, and you are only going to excel to the level of your competence (or to your level of incompetence). Make sure that you realize that when you are doing something. There is no one there to tell you if you’re doing it right or wrong.

Now, an investor has a team. They are trading cost for time. They value their time more than they do the money that they would be saving. These are people like contractors, Realtors, property management companies, inspectors. You name it, and they are leveraging it out.

Related: Pitfalls New Investors Need to Avoid to Be Successful in Real Estate

They are sitting behind the desk, thinking about how they can be more successful, as opposed to a landlord that is out in the field doing it.

The biggest challenge of being a landlord is it is not scalable. We all only have 24 hours in a day. And if you are not using those 24 hours as effectively as possible, you are missing out on opportunity. See, an investor is using scale to leverage out other people's time, so that they can be more effective and focus on what they're doing.

And again, if you want to be a landlord, that is fine. But make sure that you create some policies, some procedures, and some structure to wrap around your business model, so that you are not the limiting factor. The biggest challenge with landlords is you become the bottleneck yourself, because you run out of hours in the day. And that is something that nobody can help you with.

Again, there is no right or wrong way—but just make sure that you have a plan.

Man sitting in the office at the table making notes in a notebook

Take the time to sit down before you even start buying properties—or before you buy any more properties—and create an end destination of what you want your business to look like. Write down some policies, some procedures, some structure. Make sure that even if you are doing it all on your own, that there are other people who could pick it up and carry on—that you are not doing it all on your own.

Now, if you’re an investor and you want to scale, I would say start hanging around different people who can help you scale to the model that you want to get to. It is all about mindset. It’s not about doing. You’re only going to be able to do so much, but you can think and leverage as much as possible.

Related: Eye on the Prize: Why an Established End Goal Is VITAL to Your Investing Plan

The Bottom Line

So, just understand this: If you want to be an investor or if you want to be a landlord, make sure that you are aware of the full scope of it all. The difference is you’re basically trading time for money and you are not able to scale if you stay on as a landlord and you’re doing it all yourself.

Make sure that when you get involved in investing and are really thinking about this, you think about how you want your life to be and how much free time you aspire to have. How much do you have now? And if the answer is not a lot, then maybe landlording is not the best way.

If you don’t have a lot of money and you need to save that, then maybe the landlord thing would work. When investing again down the road, revisit this and think it through first before you actually start doing it. That way, you will have much more success in the future.

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What are you goals? To be a great landlord or to be a great investor? Do you think it’s possible to be both? Do you agree there are limitations?

Let’s talk in the comment section below.

Steve Rozenberg is the Head of Investor Education for Mynd Management, a national property management company that combines talented experts with data and technol...
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    Steve Wilner from Nong Phok, Chang Wat Roi Et
    Replied 8 months ago
    I guess this is fairly new? So talking here in the comments section. We are in a fairly unique set of circumstances and/or issues. So is there any way to take your ideas and also go globally? So much more but starting the conversations? Or not, as mentioned in the article that time reference too.
    Steve Rozenberg Specialist from Houston, TX
    Replied 8 months ago
    I think you definitely can. Being able to document processes, procedures and systems is key. Once you do that you can leverage it out and then be able to monitor it via metrics and KPI’s
    Chad New from Orange County California
    Replied 8 months ago
    Great article at a great time. Struggling with renting my newly purchased home in Orange County by myself or using an agent. Do to the cost of construction bids in this area I have had to take on a project needed in the house before renting out. I have realized, I can do the work, but I sure don’t enjoy it. I would almost rather go to my regular job and earn some overtime and pay someone else to do it. When it comes to renting my first house, there are so many unknowns that over the weekend I decided to just pay my real estate agent the listing fee to take care of it. Now I have less stress and more time with my family.
    Steve Rozenberg Specialist from Houston, TX
    Replied 8 months ago
    I can definitely relate to this. I learned that the “opportunity cost” is what we sometimes miss out on as entrepreneurs. The return you get is not always a monetary return, it can be time with family and nights of good sleep. Whatever you value is really the thing you should focus on obtaining. Time is definitely one of those things in my opinion
    Barry H. Investor from Scottsdale, AZ
    Replied 8 months ago
    CHAD - having lived in So Cal myself for 18 years, I understand the trade-off of time/money. I would challenge you, however, to remain closely involved in every step of your first investment property's metamorphosis.. I have been doing this for 16 years now and though I am now doing Turn Key property sales to investors (with tenants already in them) in Kansas City MO, I learned some tough lessons along the way by giving up control and trusting people whose 1st allegiance is to themselves....with my money. After you have a few under your belt and you are cash flowing, knowing how each step of the process affects your pocketbook, you can delegate more.
    Steve Rozenberg Specialist from Houston, TX
    Replied 8 months ago
    I agree that there are areas of the country, OC being one of them that make it tough to have a successful investment depending on your parameters. I myself am from there born and raised, and yes having properties in other areas can definitely be tough. Sounds like you have created a great working model that works for you and your clients. I can only speak of my first hand experience. I almost went bankrupt self managing my own rental properties when i first started. We had about 35 homes and were running them into the ground. We can blame scale and area and type of property. But I learned over the years my lack of knowledge of running a proper business is really what was causing me to fail. We went on to create a management company that managed over 1,000 properties in 3 cities and ended up selling that to a firm that manages 10,000 investment homes in 16 regions that I am now a part of. I will say that the lessons I learned were invaluable to me when I first started but I am not sure they were necessary and there was a lot of money lost along with sleepless nights. Over the years the oversight of landlords can be very tough and stern. If a fair housing violation or discrimination suit is filed on a landlord it can be catastrophic financially for the person, right or wrong. There is no where that is asks if this is new and if so they give you a pass. You are held to the same standards as the company I work for and they expect you to know the laws and have policies and procedures documented , written down and followed. I think the challenge is that we put so much effort and time into buying the deal we forget to educate ourselves on actually getting the return on the deal and it is almost an after thought, let alone making sure the property is part of our strategy to achieve our goals. I think if this had more emphasis landlords would have the knowledge to know but not necessarily have to do. Again it is just my thought and opinion not saying I am right or wrong, just a perception of the life I had to live at one time.
    Pat Mcray
    Replied 8 months ago
    Good read, but what this article is failing to realize is that the best real estate investors are landlords, at least in the beginning in your investing career. The lessons you learn from being a landlord carry over and make you a better investor. Everyone wants to skip out of doing the ground work. You have to learn how to crawl before you walk.
    Steve Rozenberg Specialist from Houston, TX
    Replied 8 months ago
    That’s a good point however I am Not sure I completely agree, the reason i say that is I agree with a few of your points. That knowledge of what is going is key along with ownership and responsibility are vital when you own a business such as owning a rental property. I do however think there’s a difference between knowing and doing. Doing does not guarantee success, especially if you do not know all the laws and legalities of what you are taking on. But having knowledge of what is and is not correct is vital as CEO I get that this may sound extreme but if I want to go to Hawaii I don’t fly myself the first couple times to figure it out and then get on an airline. I just buy an airline ticket and let the professional airline pilots fly me there. When you have a rental property you should be the CEO of the business and know every facet of the operation not necessarily having to do it but definitely you are responsible to know it and understand it which I think is where the gap is with many landlords. They just give it to a PM company and hope and pray they will do a good job and do not make sure the PM company or anyone they use as leverage is part of their team
    Bryant Hull Real Estate Investor from Huntington Beach, CA
    Replied 8 months ago
    Nice work Steve! Congrats on the sell of Empire. You're always putting out good content. I'm still grinding away in Orange County on my management company. Good luck with Mynd!
    Steve Rozenberg Specialist from Houston, TX
    Replied 8 months ago
    Thanks Bryant. Hope you are doing well. Yes it’s been a great experience with Mynd and all they are doing. Enjoying being an influencer in the industry again
    Tushar P.
    Replied 8 months ago
    Seems like being a landlord is a good deal for old retired people...
    Steve Rozenberg Specialist from Houston, TX
    Replied 8 months ago
    I think thats great to be retired and to be a landlord. there is nothing wrong with either way. The difference is if you have systems and policies in place to run and automate... or you are the systems and automation.. It comes down to a matter of leverage of your time or your time leverages you. If you are retired and you like to do those things then you should, if that is not what you enjoy or not good at or would rather do other things then you systemize, leverage and automate as much as you can
    David King
    Replied 8 months ago
    No surprise the author works at a property management company. Let me explain how property management companies work. First and foremost there is a conflict of interest when dealing with most of them. First of they charge around 10% of gross, that could be between 20% - 40% of your net. Second most get kickbacks from service providers around 10%, this raises your overhead by 10%. Better said, everytime they call a company to rekey, fix something, make upgrades you will pay at least 10% more. Next most charge you more to get a new tenant, so they make more when there is turnover. Let me say thay again, they make a lot more if your tenants stay for the 12 month lease then leave. Most charge one month for a new tenant. It would take them 10 months to get that so turnover makes them a lot more. They are not even close to being as sensitive about checking your applicants out thoroughly. They just want to get it leased to anyone, hopefully someone who will leave in a year. I do not recommend handing something you don't clearly understand to someone else. If you have a 3 million dollar portfolio then you are handing them at least 300,000 (10%) . It may be worth it and it may not but you should clearly understand how their business makes money and how your does. Property management companies and authors trade time for money.
    Steve Rozenberg Specialist from Houston, TX
    Replied 8 months ago
    HI David, you definitely bring up some good points for people to know and understand and I agree with some of them. However to assume that I am or created a company of which you wrote about is not only incorrect or a fair assumption I think it is a bit irresponsible of you to assume. I am first a foremost an investor just like the rest of my friends on this forum and quite possibly you as well. I do not know your background so I will not assume. My normal career is that of an airline pilot who had to turn to investing in real estate after 9/11 almost took that safe secure job and showed me just how un-safe and insecure it really was. Real estate was my only option to save my future, as I purchased more properties (Houses and apartments) I was single hand-idly running them into the ground and myself right into bankruptcy if I did not change the path I was on. I was doing everything wrong, too emotional, not knowing the law and having no idea how to run a business. We created a PM company to save ourselves from going in financial meltdown only after we could not find a company that we felt could manage our properties to be successful and the ones that could, had no interest in managing our homes because they were too low end and time consuming. We went to and hired a business coach and learned how to create a company as business owners, not investors and not property managers. We created an amazing company that was geared toward helping investor achieve wealth. With that said my company, probably whomever you work for, anyone who owns real estate.... is a "For Profit" enterprise. I am not creating a company and learning all the laws, dealing with thousands of tenant, spending time for free so that I cannot support my family and pay the employees who work for me. Assuming that a PM company should not make a profit is moronic. Just as moronic for me owning a pm company to ask the owner of a property my company manages for a piece of the appreciation, cashflow, tax deductions. I will agree that there are some very unscrupulous property management companies that are not upfront and do not disclose their fees. I just like you and probably everyone of my friends on this forum do not want to feel like we have been taken advantage of or ripped off. But just like there are many bad real estate operators, gurus, coaches, any business for that matter you will find this same challenge. I am sure you have in your life had someone rip you off. Sometimes its the car business by sales person, sometimes its the airlines, sometimes its a restaurant. But I am going to assume you still buy other cars , fly on planes, and eat food..... You do not lump them all together and no longer or get around or travel do you? This is no different. I think the challenge is many real estate people do not take the time to slow down and make sure that when they hire a PM company they need to make sure that company is reputable, knowledgeable, and most importantly aligned with helping that investor achieve their specific goals. Unfortunately many people hire a pm company last minute and they either take the cheapest lowest fee or the one that answers the phone first... If you stop and think that is like hiring a surgeon that is having a 50% off sale that day and then after you are shocked and upset that you did not get what you expected (Not that I am saying a PM company is similar to being a surgeon, but you appear smart enough to understand what I am saying). You bring up some great points that many people need to be aware of, I think the best thing I got out of your comments is that people really do need to educate themselves on what the company does, does not do, and all fees associated with their services.
    Robert Oramas from White Plains, NY
    Replied 8 months ago
    Hi David, Not fair to generalize all property management companies into "the same bucket". While some may charge 10% there are others, like myself, that start at 7% and we do more rigorous check and balances, than your average landlord who is screening tenants themselves, before placing a tenant into a property. Again maybe some PM nickle and dime the property owner but most of us do not tack on a surcharge every time we dispatch someone to come to the property to resolve a minor issue. Of course if we are project managing a renovation that requires us to be on-sight to supervisor the work, I believe its fair to charge a % of the invoice.
    James Furlo Rental Property Investor from Coravllis, OR
    Replied 8 months ago
    My experience talking with other investors isn’t necessarily a mindset issue, but one of margins. In other words, many people buy at a price where the returns can’t support a team or growth. It’s implied with the line, “Now, an investor has a team. They are trading cost for time. They value their time more than they do the money that they would be saving.” Usually what I see happen is someone buys near the market rate, and then manage it themselves because the cash flow demands it (and you often get the excuse... it’s for retirement so I’m OK breaking even today). Then, only after years of rent increases and/or a refinance does the cash flow support a team. Ironically, the ROI is so low they would have been better off investing in index funds. So yes, mindset is important. And in addition to: “ Take the time to sit down before you even start buying properties—or before you buy any more properties—and create an end destination of what you want your business to look like. Write down some policies, some procedures, some structure...” write out the financial model. What’s you’re criteria for purchasing? People I talk to are shocked by how low you have to buy (or, how much extra value you need to add) to earn the margins that support a team and scalability. Which, as said, is also a mindset difference. Of course, this is coming from a 36-year-old who quit his job last year and is living 100% off his rental income b/c he decided to save money and be a landlord (and loving it).