Investors: Here’s Why “Rental Owner” & “Landlord” Are Two VERY Different Roles

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Is being a real estate investor and being a landlord the same thing? Or are they two completely different roles? Knowing the distinctions is incredibly important and can make all the difference in getting what you really want out of real estate.

We are all more than aware of the need to invest. Owning rental properties is a way to invest in real estate and build wealth. But becoming a hands-on landlord can be distinctly different than pure investing for a number of very important reasons.

Being a hands-on landlord can be great. It can be therapeutic, rewarding, and a major upgrade from many people’s last job. Just make sure you know the difference BEFORE you get in. As we know, it’s always easy to get in than out.

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A Mindset Difference

Being an investor versus a landlord is a mindset. Not everyone realizes it at first or recognizes that there could be a better option. Many new investors get started reading about real estate and owning rental properties and rush right in. Sometimes they don’t finish the book, they don’t look at all their current options available with today’s technology, or they think they can do the hands-on DIY landlord gig better than anyone else. Sometimes this works out perfectly. In many cases, it doesn’t.

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Related: The 5 Levels of Property Management Expertise

In reality, this often becomes more of a grind and stressor than anything else. Believe me, I tried it. I detailed some of the reasons I personally made the switch to hiring management out on the BiggerPockets blog here. It may be better than working at Starbucks or in a boring cubicle, but do not underestimate that property management is more than a full-time job. It means being on call 24/7/365 days a year. If you are in your dream condo next door and never want to travel, that might not be a problem. But most people get into real estate dreaming of extra cash to go live life, to getaway on holidays, or to move somewhere luxurious.

Scale is another major consideration. Most don’t start out with a big enough property to settle all of their future financial goals. So if you are tied to that first triplex or 20-unit multifamily apartment building, you may never find the ability to grow to where you wanted to be financially.

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Want to Scale? Then You Can’t Do it All

You may be a better landlord for your property than anyone else, but if you want to grow and scale, you will have to be willing to let someone else do the job.

Related: The Compelling Reason to Consider Hiring a Property Manager For Your Rentals

In reality, owners are rarely the best property managers. They make emotional, not objective, decisions and put themselves at big risk from a variety of liabilities. They often can’t help it. And this remains true when landlords try to bring in amateur help instead of delegating to professional third-party property management companies, too. If you really prefer not to delegate out your property management, then build a professional company yourself. Just make sure you build a model that makes it hands-off for you. Investing and generating wealth and passive income from an investment in its truest sense should never rely on the amount of hours you can put in, how often you’re available to be on call, or a skill set that only you possess.

What’s been your experience so far? What has driven your decision to do it the way you do?

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record

25 Comments

  1. Mike McKinzie

    Sterling
    You stated “Being a hands-on landlord can be great. It can be therapeutic, rewarding, and a major upgrade from many people’s last job. Just make sure you know the difference BEFORE you get in. As we know, it’s always easy to get in than out.”

    Now for my paraphrase. “If you are managing your own rental property, you did not make an investment, you BOUGHT A JOB!” Now it may be a better job than you used to have, but make no mistake, it is a JOB. And while you may be the owner, there will be times that the property OWNS YOU! Or even worse, the TENANT OWNS YOU! A non paying tenant who is fighting the eviction is owning you like no tomorrow! Just read some of the eviction horror stories on BP and you will see.

    In my life, I have invested in Apple, Disney, EMC, Wells Fargo, Arctic Cat, GM, etc… and I NEVER did a minutes work for them. THAT is an investment. I bought a ring at a Pawn Shop for $200 and it appraised for $3,000, and the only ‘work’ was taking it to a jeweler for the appraisal. That was an investment.

    So I agree with Sterling, if you want to really become a Real Estate Investor and not just have another job, you need to delegate the tasks that are NOT producing the highest income per hour for you.

      • Mike McKinzie

        I ran my own Property Management Company for several years, back in the 1980s. I had to deal with a husband murdering a wife, a two year old drowning in a pool of a house I managed, a DEA bust, finding Pot growing in the backyard, having to clean out a house with a garden hose-on the INSIDE, pulling down wallpaper and being rained on by an avalanche of cockroaches, and so much more. I currently manage ONE of my houses, but two of our boys are the tenants. I made it very clear to them that whatever damage they do to the house is HOW they will inherit it. They keep the best care of that house, better than any tenant I ever had. I told them that if they did NOT pay the rent, I could not make the mortgage and they would inherit NO HOUSE at all. The best paying tenants I ever had. But anything any Property Manager has ever faced, I have. A burning rental? Yep! A flooded rental? Yep! An earthquake damaged rental? Yep! A gang invaded rental, along with the graffiti? Yep! WELCOME to Real Estate investing!

  2. Hello Sterling,
    Many great leaders follow the same practice “hire smart people who specializes in the things you don’t know.” I am a firm believer in this practice and know that “I don’t know everything.” Our first property is a turn Key and properties two and three will also be turn Key. I want passive cash flow – not another full time job.

    Thanks for the article.

  3. Steve Vaughan

    Hello again Mr. Sterling! Thank you for saying that landlording can be rewarding because I agree. It’s not always pink clouds and roses but I find it very satisfying .
    I’ve never experienced that crud like Mike did. 3 dozen units for over a dozen years. Location, asset class and tenant selection are extremely important. I wonder who was doing his tenant screening? Lol.
    Speaking of PMs, Nancy I hope your turkeys work out for you. Please keep us posted when there’s a little history and you can share whether your expectations were met or not.
    Happy 9-5 in the meantime, ya’ll. Effective self-management is not rocket science.
    If landlording is a JOB, I like it. Looking back, I’d do it again. I like my naps. I like being the only dad volunteering on my son’s field trips because all the others are working.
    If I get tired and want out I’ll just sell them and retire. Again. Cheers and happy investing!

  4. Mfreke Inyang

    Great article Sterling. Any advice on what terms you would want to negotiate with a professional PM that would lead to a positive and profitable relationship for both of you?

    Also, any experience in the ability/difficulty of finding a PM for your first and only multifamily property?

    Thanks
    Monk

    • Sterling White

      Mfreke great question. My first PM company I hired was an ok experience, but I decided to build a PM company to manage properties I have ownership in.

      If you could somehow negotiate a way for the PM company to have skin in the deal that would be ideal. This is a general idea with the little context I have on your situation.

      To find a reputable PM company you will have to ask around(other investors) & once you find a couple PM companies you are comfortable with then meet with them. Make your judgement from there on who to go with.

      Hope that helps

  5. Faisal Farnas

    I believe in a compromise: Doing it myself for the first year then outsourcing to property management later on if I need to. This has two benefits:

    1) I select the tenants myself. Nobody is going to be as careful as me, the owner, during tenant screening and selection.
    2) I learn about the peculiarities of the property and get an idea of the repair costs, so I won’t get ripped off by management in the future.

  6. John L.

    Nice article. Just a few points I thought about when reading from my experience.

    The way I combat property management is investing in higher quality homes (also newer) which attract much higher quality tenants. Most of the time you’re going to find this a bit away from the major cities where there are great schools. You should expect lower returns but a heck of a lot less stress and headaches.

    It might also be good to do some landlording to get some experience in order to know if your property management company is doing a good job or not. I do agree with you that if you’re successful enough to scale up, you should get a management company. Below 10 rentals (where I am now) I am comfortable doing it myself. Thanks!

  7. Colin Reid

    I have no desire to be a landlord. We just factor in the cost of a PM in the calculations when we are looking at a property. If it doesn’t cashflow with a 10% management fee, it simply doesn’t work. Move on to the next one. Frankly, the only reason I got into rental real estate in the first place was because a friend was getting into it and suggested I rent my first home out when I got orders to move. He then offered to manage it. If it weren’t for him, I would have sold it, likely for a big loss.
    The whole point of rental property for us is passive income.

  8. Kandi Alston

    Great Article!
    I currently self manage, but I am in the process of buying my second property and I’m factoring in the cost of a PM in the price. I am in real estate business for passive income. I will manage if I need to, but if I can afford it, my time is valuable to me!!

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