Are You A 'Mom and Pop Investor'?

6 Replies

How Do You Define a 'Mom and Pop Investor' ?

Before I started investing, I looked down on the hard working 'Mom and Pop Investors' who "only" owned 6 or 8 rental properties. Years later I stand with them and admire their investing technique and I am modifying it so that it works well for my situation.
How do I define a 'Mom and Pop Investor'? I think there are several different things that I have seen that are common among many of the smaller investors.


They Own Fewer Rental Properties
I know this probably seems obvious, but mom and pop investors in general own fewer rental properties. Most of the ones that I have personally met own less than 10 properties, though I do know a few that have reached nearly 100 units. The reason for this actually goes into some of the other common factors.

At the moment I own my primary residence and 4 rental properties with 10 total units, putting me dead center in mom and pop territory.


They Are Self Funded
Mom and pop investors in general fund their real estate acquisitions using their own money. Basically they save up enough for a down payment and then buy a property. More sophisticated techniques such as syndications and private money are beyond the scope of most mom and pop investors, though some do use partnerships. 


Since I started investing, I have been mostly going pretty slowly, buying on average one property per year. The reason is because I am using only my money for down payments.


They Have More Equity In Their Properties
Many of the mom and pop investors are more conservative with their investing approach and prefer playing it safer for consistent cash flow. Keeping that in mind, many have more equity in their properties and some believe strongly in having zero debt and paying off the mortgages as quickly as possible rather than continuing to buy more properties through refinancing.


I have at least 30% equity in every one of my rental properties. As of right now I have not refinanced or gotten a line of credit against any of them in order to buy more property because I am taking a more conservative approach. I do not believe in paying down the mortgages sooner, or buying with all cash, but I am a little more conservative.


They Work Full-time Outside of Real Estate
Being a smaller investor and not necessarily having huge amounts of cash flow means that often mom and pop investors make the majority of their income through other means. I have also noticed that many retirees also are mom and pop investors.

My full-time job is in law enforcement, and while I love real estate, I would prefer to not work in it full-time as of right now. Interestingly enough, my first landlord when I moved to Omaha was a retired police officer.


They Self Manage
This is the one area where I don't personally follow the standard 'Mom and Pop Investor' model. I have spoken to many mom and pop investors and they take great pride in managing their properties directly. They rightfully believe that no one will care more about their property than they will and they are able to increase their profits by not having to pay property management. 


Since I have a very demanding career, I chose to hire property management because I knew that I would be unable to attend to my tenant's needs in a timely manner. 


They Handle Rehab/Maintenance/Repairs
Many mom and pop investors prefer doing the work themselves. We all know just how expensive it is to hire out even small jobs, so to maximize their returns, many mom and pop investors will do some of the work themselves. 


As a personal example, I did a lot of the rehab work on one of my latest properties myself, saving me thousands of dollars and teaching me some great handyman skills. 


They Primarily Invest Locally
Mom and pop investors know their markets well and capitalize on that fact to find good deals. On top of that, since the majority self manage, they know that they need to live close to their properties to be the most effective. 


While I own properties out of state in Arizona, I bought them at the time when I actually lived in Arizona. I actually lived in my 4 plex in Tucson for a year since I bought it with an FHA loan.


They Are More Flexible With Tenants
This can be good in some instances and bad in others. Mom and pop investors are known for being more flexible when it comes to the many unique situations with concern to tenants. Just as an example, I had a tenant applicant who wanted to park his semi-truck in my yard. I told him that I may be able to find a way to accomodate (for a fee of course). 


Another example is an elderly tenant in one of my units who lives on a fixed income, social security. I agreed to not raise her rent for a year at lease renewal since she always pays on time and has been a tenant for over 4 years. 


This same flexibility unfortunately means that sometimes tenants are able to take advantage of mom and pop investors, so some of them will have horror stories about nightmare tenants and evictions.


When it comes down to it, many mom and pop investors were able to use real estate to pursue financial freedom. I proudly admit that I now am one of them. While our techniques aren't flashy or sophisticated, they are effective. I should also mention that many of the more advanced investors started off using mom and pop techniques. In the end though, they are part of what makes real estate accessible to almost anyone.

What I hear you saying is in real estate, there is no such thing as one size fits all. I would say the same is true for careers and businesses in general. Success is an individual thing measured by individual metrics.

The wealth-building procedure you describe is the one outlined in The Automatic Millionaire by David Bach. The operative words are "automatic" and "millionaire." The rest of the world doesn't care how you got there.

@Anthony Gayden

man, have we met before??  you basicallyl described my real estate investing perfectly.  the only difference for me is...  i am strict on screening tenants, and i am using the brrr method.  everything else that you posted is very spot on.   can i ask you, why did you originally look down on "mom and pop" investors.  i currently own 3 investment properties total, but i hope to grow that number much higher in the next few years, if possible. 

adam

We have always called ourselves a mom and pop business, and the OP describes us perfectly.  I never subscribed to the advice of being aloof and anonymous. We live in the same building as 5 of our units, so they're our neighbors, tenants have watched our kids grow up. But we treat the residents of our other two properties the same way. When you're a human in your tenant's eyes, it's far harder for them to view you as "the man".

We put down $60k on our first BRRR property in 97. We have lived rent free all this time and now we have somewhere north of 3 million in equity. Great luck in market timing helps.

Originally posted by @Adam Drummond :

@Anthony Gayden

man, have we met before??  you basicallyl described my real estate investing perfectly.  the only difference for me is...  i am strict on screening tenants, and i am using the brrr method.  everything else that you posted is very spot on.   can i ask you, why did you originally look down on "mom and pop" investors.  i currently own 3 investment properties total, but i hope to grow that number much higher in the next few years, if possible. 

adam

Some of the larger investors talk down on the smaller ones. I had heard countless stories about how some burned out mom and pop ran their properties into the ground and then sold for a huge discount to another investor who made a huge profit. 

I also had heard larger investors criticize common techniques used by mom and pop investors such as investing locally and self managing.

In the end I found out that mom and pop investors and the techniques they use are not bad and they enabled me to invest and make money even though I didn’t start off wealthy.

I checked all but 2 of your boxes. We work full time and the ability to get our buildings was truly a dream come true. A dream which we fought tooth and nail for and earned every aspect of it. Believe me after the 1st two I was ready to keep acquiring- but we had to put a lot of blood, sweat, tears and cash in to repositioning them and we need some recovery time!

My gratitude cup runneth over!

1. I am not flexible with my tenants regarding lease terms. I went in like a machine when I had to remove tenants and while I am very "friendly" with "my" tenants I am not friends with them. I don't think this is at odds with what you posted- it is just that I don't like the term flexible.

2. Equity- I do have equity now, so you have me on the mark. And it is growing every day due to my proximity to NYC, but I see it as dead money- and I will definitely tap into it without a seconds thought.

Great post- you really hit a lot of the nails- it is a great life!