By Ketan Patel
Date August 7, 2018

Understanding the Difference Between Being an Investor and a Landlord

Real estate is a popular investment choice because it can offer a stable asset that produces an immediate cash flow. You can leverage the capital investment to build wealth faster and gain the opportunity to produce reliable passive income.

However, it can also be a full-time job for investors who want to fix and flip homes or those with large portfolios, who choose to take on the duties of a landlord. Real estate investing offers the flexibility to choose not only the type of property but also the level of involvement.

Take a look at the role of becoming a real estate investor versus becoming a landlord.

The Role of a Real Estate Investor

Real estate investors can spread risk across multiple properties, tenants, and investment strategies. The role of an investor is to identify potential properties, secure the financing, arrange for initial upgrades, and sell the investment at a future date.

You then rinse and repeat to build a portfolio, which will produce the passive income desired.

Whether you upgrade your investment portfolio through 1031 exchanges or buy and hold properties to reach your target income level, investors focus on the acquisition, rather than the management. Fine tuning the property acquisition process and securing financing is the top priority.

The Role of a Property Manager or Landlord

Wearing the hat of a property manager or landlord requires a different set of skills than locating and financing real estate properties.  

The job of a landlord includes finding and vetting tenants, making repairs as needed, enforcing the terms of the lease, inspecting the property on a regular basis, and in some cases, processing evictions. A property manager is on call 24 hours a day, seven days a week. The work is more administrative and procedural.

Depending on the number of tenants you have and the size of the portfolio, property management can be a time-consuming process. In most cases, a single property will not provide for all your income needs, even if you buy a commercial building.  

The biggest benefit of keeping property management in-house is the lower cost. Investors with handyman skills can save additional money by completing upgrades and ongoing maintenance.

The biggest downside is the time required to manage the properties effectively. For a large portfolio, it could become a full-time job defeating the goal of earning passive income. Forming partnerships with others who can take some of the landlord duties can balance the two roles.

Trading Time for Money

Investors seeking passive income soon realize that wearing the hat of a property manager is anything but passive. You are now trading time for money. When you calculate the time/value of money, you must decide if your time is better spent expanding your portfolio or managing properties. Once you reach the desired capacity, the time/value equation turns to alternate activities such as more time with family, traveling more, volunteering, or developing interesting hobbies.

If you choose to increase your income through real estate investments, you might find you can actually earn more by delegating the property management tasks to others and focusing efforts on building your portfolio.  

 

 

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