Are you a landlord or an investor?

[Ndy Onyido]

Hello BP Nation,

I have asked and been asked this question over and over again by friends. I know different people have different opinions on this and in this post, I wish to generate those opinions by briefly stating my views of what I believe are the differentiating factors.

According to http://www.thefreedictionary.com/landlord, a landlord is defined as:

1. One that owns and rents land, buildings, or dwelling units.

2. A man who runs a rooming house or an inn; an innkeeper

And what are his responsibilities? According to http://settlement.org/ontario (well, I live in Ontario), here are your responsibilities (I summarized them) if you are or wish to be a landlord:

§Keeping the home in good repair: You must repair and maintain the home, and obey provincial and city health, safety and maintenance standards. You are responsible for repairs even if the tenant knew about problems before agreeing to rent the home.

§Maintaining common areas: You are responsible for cleaning and maintaining the common or shared areas of the building, such as hallways and yards. You are also responsible for removing snow from driveways, walkways, etc.

§Providing access to vital services: You must provide access to hot and cold water, electricity, heat and fuel (e.g. natural gas). You cannot shut-off these services, even if the tenant has not paid rent. You may shut-off these services temporarily in order to make repairs. You and your tenant can agree that your tenant will pay for these services as a standard fee each month or based on what the tenant uses.

§Providing Heat: You must provide heat in the home from September 1 to June 15. During this period, the minimum temperature is 20C. Some cities and towns set additional requirements. You can check with your local government to find out more about minimum heat standards in your community.

§Providing documents: You must provide your tenant with a copy of the lease or tenancy agreement, and written notice of your legal name and address. If the tenant requests rent receipts, you must provide them. You cannot charge a fee for any of these documents.

Notice that all these are 'active' words-verbs used to describe the work of a landlord. A verb is a doing word.

In addition to these , he has to cope with mid night calls from tenants, handle lease documentations of boarding and onboarding of tenants, chase rent payments from late paying tenants, handle evictions, repairs and maintenance etc.

Well, count me out of all that! I will rather leave that to those specially trained and equipped to handle them, while I spend my time on the things that matter most to me….my family, friends and leisure: this is my target.

Let’s talk about the investor briefly:

According to http://www.investorwords.com/2630/investor.html#ixzz3lvQW5IZP, an investor is an individual who commits money to investment products with the expectation of financial returns.

His primary objectives are the returns from his investment. He is principally concerned with the numbers and invests with no emotions. He is focused and disciplined. If the numbers don’t make sense, he does not invest, period!

A landlord often has sentimental attachment to his house: its my first property, it reminds me of my childhood, I had and brought up my kids in this house; it must not be sold because my father bequeathed it to me….etc.

Ok. Let me take a pause here: frankly answer this question: Are you a landlord or an investor? And why do you think so?

[Steve Vaughan]

Hi @Ndy Onyido!  Well-written post.  Didn't want all your work you to fall to the land of the no reply, so figured I would chime in.

I am both. Landlording is the primary way I invest.  I also wholesale and lease option when convenient. I purchase property under market value with leveraged dollars and receive great tax benefits from doing so.  Other 'investments' tend not to offer such benefits.

I self-manage all of my units and have for years.  I've only received about 3 night time calls in 12 years. I don't clean my own common areas and am not providing heat or hot water manually, but I get your meaning.  Things do need to be kept up and maintained and I make sure they are done promptly and inexpensively.   The only way to do that (inexpensively) is yourself. You can hire the greatest PM in the world (if that's what you are implying as you spend your time doing what you like) and you can stroke the big checks while you're there.  Welcome to the world of $100 breaker flips and faucet drips.  PM forgot to turn off the valves in the winter?  Too bad. Pipes froze and you have a flood.  The property is not theirs and you'll know it.

I also consider myself an investor as a landlord because we are masters of doing something once, then receiving residual income from it for years.  I created a good lease. Once.  I fix up a property and bullet proof it once.  I acquire a property once and don't have to look for a new one next week, etc.  I have efficient methods of rent collection that generates it's own receipt, etc.  It's not the full-time job you portray at all.  Not to me.

True I am more 'invested' than one who just buys a business or paper security, but I can add value and have the satisfaction of ownership.  My asset values don't rise and fall with the Chinese dollar, Greece's insolvency or Congress holding us fiscally hostage.  

What other 'investment' gives you that kind of security and flexibility while you are hanging out with your family? Don't forget the tax benefits, bud. My effective tax rate has been negative since 2003.  Cheers!

[Justin R.]

I can't think of any reason these two are mutually exclusive. Every investor, properly concerned with very specific and measurable outcomes, takes on some amount of effort to reach those outcomes.

If that effort includes reading prospectuses in order to pick stocks, so be it. If that includes choosing and managing your own tenants, so be it.

If someone asks me, I would comfortably say I'm an investor who also chooses to be a landlord - I'm only a landlord because I've judged it to be the most compatible approach to reaching my investment goals (which, I would add, are not entirely financial).

[Ndy Onyido]

@Steve Vaughan

Thanks for your detailed post.. You seem to have good success with self-managing your properties for 12 years.....but doesn't that look like a 'job'?. I mean, you have to actively get involved in day-to-day running of the PM business as a whole.

I get your points, though. Thanks again for your contribution.....

[Ndy Onyido]

@Justin R.

Thanks. I understand that different people have different reasons for being in real estate business to meet thier investment goals, and i totally agree that not all of them are financial....

Thanks for your contribution.

[Ben Leybovich]

@Ndy Onyido

1. Congratulations on being more capable of eloquently expressing an intricate thought pattern than 99% if the folks here!

2. Congratulations, as well, on being a thinker!

I am going to challenge your premise. In that an investor commits capital to work, he also works to underwrite the opportunity. Though this might not be physical labor, it is very laboreous indeed.

Yesterday I analyzed a 46-unit. Today I analyzed a 124-unit. It takes me about 3 hours to do the work, and the reason I have the time to do it is because I don't participate in the world of gainful employment, which is more commonly known as Job. As you might have guessed, my rentals are a big part of the reason I am blissfully jobless...

So - am I an investor or a landlord? I don't know. But, I do know that I don't have a job and you do... kinda makes you think, I hope :) lol

You're up.

[Justin R.]

Originally posted by @Ben Leybovich:

@Ndy Onyido

So - am I an investor or a landlord? I don't know. But, I do know that I don't have a job and you do... kinda makes you think, I hope :) lol

You're up.

Whenever this topic comes up, I can't help but think of Dan Pink and his well-watched animated video about what motivates us (https://www.youtube.com/watch?v=Y64ms-htffE). In it, he talks about people being motivated to achieve more not by money, but by a desire to work autonomously, achieve mastery, and have purpose.

I know this is true for me - once I've got my kids fed, I look for work that gives me those three.  Real estate financial investing gives me two of the three.  Landlording offers all three.  My day job offers all three.

If my day job stops offering me this, I'll quit.  If self-managing most of my rentals ceases to offer me this, I'll quit.  But since it works perfectly fine for me, it always rubs me a bit wrong when folks imply having no job is better than having one.

[Jerry W.]

@Ndy Onyido, very well written post.  Unfortunately I am a landlord, with really big loans.  I am in the in between size where setting up a large system doesn't seem reasonable, but you are spending a lot of time managing.  I have locally about 15 properties separate from each other, and about a dozen apartments managed by a property manager.  I struggle finding a decent handyman that has time to work on things.  My hourly wage at work is much more than it costs to hire a handyman, but I cannot seem to find a good one who has the time to get to my work.  The bad ones have lots of time.  I actually enjoy doing some fix up work, but in the quantities I seem to be doing.

[Ben Leybovich]

Originally posted by @Justin R.:

Originally posted by @Ben Leybovich:

@Ndy Onyido

So - am I an investor or a landlord? I don't know. But, I do know that I don't have a job and you do... kinda makes you think, I hope :) lol

You're up.

Whenever this topic comes up, I can't help but think of Dan Pink and his well-watched animated video about what motivates us (https://www.youtube.com/watch?v=Y64ms-htffE). In it, he talks about people being motivated to achieve more not by money, but by a desire to work autonomously, achieve mastery, and have purpose.

I know this is true for me - once I've got my kids fed, I look for work that gives me those three.  Real estate financial investing gives me two of the three.  Landlording offers all three.  My day job offers all three.

If my day job stops offering me this, I'll quit.  If self-managing most of my rentals ceases to offer me this, I'll quit.  But since it works perfectly fine for me, it always rubs me a bit wrong when folks imply having no job is better than having one.

 Justin - I apologize if I rubbed you the wrong way. No disrespect meant at all, and I very much agree with all of your points indeed!

Present conversation, I thought, juxtaposes passive investing and land-lording. The presence and or choice of job was not under consideration.

Now - I have my reasons why even though I agree with you and the video, I think job is the wrong way to go. Aside for the obvious that due to overbearing taxation obligations we must work entirely too hard in order to achieve in a job setting, which may or may not bother you, I also have personal reasons associated with instability of revenues generated via W2 and 1099. I enjoyed being a violinist, and it was all I ever wanted, but discovering that I have MS put color to making money via job...

[Brent Coombs]

@Ndy Onyido, I would say that all Landlords are (also) Investors, but all Investors are not Landlords (that is, they don't all own rented-out properties).

The definition of "job" on the other hand... ("Well, count me out of all that" too)!

[Bill Gulley]

Here's a new term "real estate operator" well, it's not really new, but it's what most are here. 

I too appreciate a well written post! :)

[Justin R.]

Originally posted by @Ben Leybovich:

Much respect to you and nothing personal ... I meant it only intellectually rubs me the wrong way.

At times, hanging out on BP (and with REI folks in general) has a bit of a cult-like feeling pushing a magic formula. I wish there was a way to celebrate more the pursuit of things like autonomy, mastery, and purpose (the things that actually lead to happiness) rather than the pursuit of quitting ones' job, making lots more money, or whatever else. When a 24yo comes on here and everyone directs them to find ways to work less, I can't help but think we're often giving ineffective and possibly dangerous advice.

Not referring to your advice specifically ... just how BP is generally.

[Peter Dascoulias II]

Originally posted by @Justin R.:

Originally posted by @Ben Leybovich:

Much respect to you and nothing personal ... I meant it only intellectually rubs me the wrong way.

At times, hanging out on BP (and with REI folks in general) has a bit of a cult-like feeling pushing a magic formula. I wish there was a way to celebrate more the pursuit of things like autonomy, mastery, and purpose (the things that actually lead to happiness) rather than the pursuit of quitting ones' job, making lots more money, or whatever else. When a 24yo comes on here and everyone directs them to find ways to work less, I can't help but think we're often giving ineffective and possibly dangerous advice.

Not referring to your advice specifically ... just how BP is generally.

I'm a Landlord/Real Estate Investor and I have no desire to quit my W-2 job.  If you have a job that you love the goal to quit make's no sense.  If I lost my current job I would be able to fall back on my properties and if I lost my properties I would still have my job.  I personally have a mandatory retirement at age 57, then I'll spend my retirement years mowing lawns, cleaning gutters, collecting rent checks and a pension.    

[Douglass Benson]

I am absolutely an investor and a landlord as well AND I have a day job that I really enjoy!  I don't own a lot of units (81) but running them is kind of easy as I own the buildings and I (kind of) own the tenants.  

That sounds awful, but eventually every single tenant that is living in every single unit that I own will be there because it was my choice to put them there.  My newest buildings come with tenants that I didn't select.  Any of them that don't fit my system will have to find another place to live.  And trust me, they will want to.

The buildings are well maintained and the tenants are well selected. My phone seldom if ever rings. When it does it is because one of the new tenants forgot my PO Box for sending in the rent.

Those tenants that do fit my system will enjoy as many years as they want to living in one of my buildings.  I have put good money into my buildings making each of them a nice place to live.  I don't offer pools or workout areas or saunas but I do offer a clean, safe, affordable place to live.  That appears to be a competitive advantage.

[JD Martin]

I am both, and I don't consider it a job - it is managing my investments. Only a disgustingly rich person, who couldn't care less what happens with the investment, doesn't spend some time managing the investment, even if that's just discussing strategy with their portfolio manager once in a while. Which is more work, thinking and worrying about where to park upcoming stock funds, or painting a wall? Neither is more, it's just different. 

I don't really look at the idea of landlording in some romantic notion. I like my houses but I recognize their primary purpose as it pertains to me is to generate income. I like the fact that I provide good, safe, quality housing to working-class people, but if I couldn't make a very good profit from the endeavor I would do something else. 

[Michael Boyer]

In my experience, as mentioned above, they go hand in hand: the investor and landlord...

For the investment angle.... My belief (contrary to the late night, get rich quick infomercials) is that the long game gets you results in real estate. You know the formula: over time the property appreciates, rents increase, you pay down your debt... along the way you get leverage galore and even tax breaks for depreciation, interest, taxes, etc...

So buy a place, rent it and do that for a decade or two (or three or four)......Ka-ching. It seems an easy investment formula and it is much publicized (think the Buy and Hold genre, and the most popular Shumacher text)...

But what the heck do you do in the meantime? For all the years or decades.... Well, this is where landlordinging  is the crucial part of the equation.

While you wait for all the appreciation and rents to rise and debt to fall (be it a few years or many), you have to manage the property (and in fact add value through good long term tenants, a kept up building etc).

You could go purist investor and try to farm out all the management, and this may work for large multi-family. But if you are an average person with a day job and trying to operate a few rentals, you may find the best person to manage this investment is the one in the mirror (you--the landlord invested in real estate).... Neat discussion topic, too. And also think about book like The Millionaire Next Door that debunk myths about wealth in the US (a bit dated, but the book's data tells us someone like a landlord in the old pickup in overalls mowing the lawn at the duplexes may be your high net worth person in America; not the flashy professional investor guy in the high end luxury sedan with a Rolex).....

[Ndy Onyido]

@Douglass Benson

This is rather very modest...you own just a few.....(81)!

I kind of like the structutre you run and since you self-manage all and still keep your day job, this is incredible.

Thanks for your contribution..

I will be interested in knowing how to manage 81 building and keep my current job..

[Ndy Onyido]

@JD Martin

@Peter Dascoulias II

@Brent Coombs

Looks like most folks claim to be both. while not diluting the the thread, landlording here was meant to be an active job..another j-o-b just like flipping which produces as long as you remain active at it......no work, no pay kind of vocation.

Thanks again for sharing your thoughts on this.

[Ndy Onyido]

@Bill Gulley

so how exactly do you define a "real estate operator"?

Did you mean one who is both a landlord and an investor?

Thanks a bunch for the contribution.

[Ndy Onyido]

@Jerry W.

I quite resonate with you. I have have folks really struggle with this situation and it does seem as if one is trapped...

Have you tried to figure out how to get off this non-ending cycle? Not sure if it is very sustainable.

Thanks for your contribution....most appreciated

Happy investing

[Ndy Onyido]

@Ben Leybovich

Thanks. As always, I enjoy reading from you and your single minded and independent views, even though you challenged the post: the underlying assumption is that the investment of capital ( intellectual, time etc), are undertaken prior to the initial investment decision, afterwhich, it becomes literally auto pilot.

Your points are clearly noted and I agree with you that time is needed for the investment to remain current as circumstances that informed the initial decision may change.....

Thanks again.

[Bill Gulley]

Nyd from an article by Roth & Company, PC. 

"The IRS discussed the issue in PLR 9840026 (some citations omitted):

I and those who are professionally related to the real estate industry use the term "real estate operator" as defined by law and the IRS Code, I didn't define this.

It boils down to "Active" and "Passive" Income, active is a real estate operator, passive is an investor. 

I didn't really bend or accept the term "investor" for those active in real estate until I got on the internet about 8 years ago., what I leaned was the gurueez, of investor. 

When I cam to BP 6 years ago, your user ID was tagged with investor, still is, it's the first "mistake" I noticed on BP, an indication that what was popular prevailed. 

IMO, this has come from gurus, they are more marketing experts than real estate experts.

It's psychology, pure and simple:

Be A Real Estate Operator with little or no money!  

What the heck is that? That's what most newbies would think.......hmmmm, do I want to be an operator? Kinda brings that negative connotation of "he's a smooth operator" not so good for marketing. Now;

Be A Real Estate Investor with little or no money down! 

Hey, everyone knows what an "Investor" is, those are the rich folks!

Here's another psychological ploy; self esteem. When some 22 year old new to the business goes out and calls himself a real estate investor in public, that pumps up the ego, a bit of pride being associated with other investors. (Problem is, those who know the difference might be laughing to themselves)

Yes, I want to be associated with the rich guys, the investors and I'll be feeling great about it right after I read this guru book and join on BP! (LOL)

There is nothing negative at all about being a real estate operator. Contractors, engineers, Realtors and lawyers operate in real estate, they are "operators" not "investors". 

So, the question posed in this thread is really asking are you active in overseeing your properties or are you managing a portfolio from a passive position? 

A landlord being an investor or an operator defaults to their level of activity. 

There is also the test of having a significant amount of financial risk. An active landlord might own his building free and clear, he certainly "has" an investment, he certainly manages "his" assets and in financial terms he is an investor, but if he is active, he is also and then legally defined as an operator. Some on BP have argued that having time invested, gas money, advertising and other expenses puts them in the investor category, no, those expenses of operations do not meet any financial test for investment risk.

Does it matter what term you use? Usually, not really, most in the general public don't know the difference. But, it does sometimes, depends on who you are speaking to.

I've said many times "I have an operation you might be interested in". That tells an educated investor that it is an active venture, their first response is often "would I be active or passive"? If they are just throwing money in, the answer for them is "passive"! (I never want an active member, I run the show). By using the correct terms with those who know circumvents the long song and dance of getting to a point quickly and professionally. 

So, I'm an investor and an operator, the income shows up on different tax returns and defined legally by the Tax Code. :)