Absentee Owner: When an individual or corporation owns a piece of real estate but does not actively occupy or reside within that property.
Absentee Owner Details
Because there are property owners who are hands-on with their holdings and owners who are not, we need terms to differentiate between the two. An absentee owner fits the latter category. They do not manage their properties. This is usually because they are simply investing in real estate, live far away from their property, or are managing another property and need help.
Corporations that typically invest in commercial properties are almost always absentee owners. They will contract third-party management to maintain their buildings. These property managers handle the day-to-day operations of apartment buildings, strip malls, office buildings, and the like.
In the case of the absentee business owner, much like the absentee real estate owner, investors can choose to be absentee business or franchise owners. This is mostly the case with franchisees who own multiple units. The absentee owner puts their trust in their franchise's staff, hiring trusted general managers to oversee the business and building's upkeep.
Real-World Example of an Absentee Owner
An absentee owner arrangement allows an investor to have many holdings not bound by a single geographical area. It is a popular way to invest in real estate without necessarily having to do any property upkeep. Because of this, absentee owners look for real estate market deals to invest in, including homes that are in foreclosure, HUD properties, and prices they can bargain down. Unfavorable conditions can prove a windfall for the prospective real estate investor.
Some investors shop exclusively for this kind of real estate holding because they may be able to strike a "buy low" deal with the absentee owner who no longer desires to struggle with the neglected property's upkeep. The absentee owner hires a local property management company to enhance and maintain the lessee's quality of stay. The absentee owner will ideally see a maximum return on the investment as a result.
Absentee Owner vs. Absentee Landlord
An absentee owner is not an absentee landlord, even though they are the owner and receive the money from whoever occupies the space. The absentee owner will then hire a landlord who oversees and maintains the property. The absentee owner can choose to provide living quarters for the landlord on-site, or if this is not an option, the landlord becomes an absentee landlord. An absentee landlord, by definition, is a landlord who does not occupy the property.
A landlord takes on a 24/7 hands-on approach and ensures that they meet tenants' safety and well-being promptly. This is why it can be problematic if the landlord does not live close to the investment property. A lack of daily oversight greatly contributes to the potential for property neglect on the part of the tenant, especially if it is not their known responsibility to upkeep certain parts of the property.
In the real estate world, "absentee landlord" has a negative connotation where "absentee owner" does not. The assumption is that the landlord is actually absent and not maintaining the property as they should.