Absentee Landlord: What It Is, How It Works, Pros And Cons

What Is an Absentee Landlord?

An absentee landlord is an individual or corporate or state entity that owns and rents out real estate but is not located on or near the property. An absentee landlord stands in contrast to an owner-occupied landlord, one who lives in the rental property. Absentee landlords are usually those that own a commercial property, a vacation home, or a second home for rental income that is not their primary residence.

Understanding an Absentee Landlord

The term "absentee landlord" often has a negative connotation when used in the context of the residential real estate market because an absentee landlord may not be performing the required upkeep and maintenance on the property.

Also, their stake in the neighborhood is purely financial. Especially since they are extracting a monetary benefit from the home but often are not reinvesting those funds for the benefit of the community-at-large. 

Absentee landlords often seek to generate rental income from their real estate holdings. This use is in opposition to the short-term view of those investors who buy and quickly sell, or flip, real estate to turn a profit. Absentee landlords are more common in the commercial real estate market than they are in residential real estate.

However, there are many scenarios in which an absentee landlord would arise without a negative connotation. For example, an individual may have purchased a home but is then transferred to another city for work. Rather than selling their property, they would rent it out.

In many situations, absentee landlords leave the management of the property to a property agent for a fee to handle any issues that arise.

Advantages and Disadvantages of an Absentee Landlord

Advantages

Many owners face a choice between selling their property due to a need to relocate and retaining it as an income property, in essence becoming an absentee landlord. Keeping the home as an income property allows the owner to continue ownership while letting their property appreciate in value. Homes may become vacation rentals, rented out when not being in owner use. The property may also be one which the owner hopes to return to and live in again at a later date.

Income properties of this type allow several tax benefits for the owner. As an example, some travel costs incurred when maintaining or checking on the property are tax-deductible. Income from rental transactions must be reported and is taxable at the owner's standard rate. Also, there are requirements for the holding of security deposits the owner must consider. Owning property in multiple markets can diversify your real estate portfolio.

Disadvantages

Being an absentee landlord can be risky for the property owner. Damage or a complete loss due to negligence or from tenant misbehavior is an ongoing worry. Squatting situations can also arise without adequately monitoring, and the eviction of tenants can be problematic.

Residential properties owned by absentee landlords are often in a poor state of repair, with building and zoning codes ignored or met to the minimum standard. Renters frequently neglect to maintain the yard and landscape which brings down the value of the neighboring property.

At a cost that cuts into their profit margins, absentee landlords will often hire a management company to perform the maintenance duties and obtain rent from tenants. Property owners are also subject to local ordinances that they may not be aware of that could present significant legal problems if left unaddressed.