Before I started investing, I looked down on the hard working 'Mom and Pop Investors' who "only" owned 6 or 8 rental properties. Years later I stand with them and admire their investing technique and I am modifying it so that it works well for my situation.
How do I define a 'Mom and Pop Investor'? I think there are several different things that I have seen that are common among many of the smaller investors.

They Own Fewer Rental Properties
I know this probably seems obvious, but mom and pop investors in general own fewer rental properties. Most of the ones that I have personally met own less than 10 properties, though I do know a few that have reached nearly 100 units. The reason for this actually goes into some of the other common factors.

At the moment I own my primary residence and 4 rental properties with 10 total units, putting me dead center in mom and pop territory.

They Are Self Funded
Mom and pop investors in general fund their real estate acquisitions using their own money. Basically they save up enough for a down payment and then buy a property. More sophisticated techniques such as syndications and private money are beyond the scope of most mom and pop investors, though some do use partnerships.

Since I started investing, I have been mostly going pretty slowly, buying on average one property per year. The reason is because I am using only my money for down payments.

They Have More Equity In Their Properties
Many of the mom and pop investors are more conservative with their investing approach and prefer playing it safer for consistent cash flow. Keeping that in mind, many have more equity in their properties and some believe strongly in having zero debt and paying off the mortgages as quickly as possible rather than continuing to buy more properties through refinancing.

I have at least 30% equity in every one of my rental properties. As of right now I have not refinanced or gotten a line of credit against any of them in order to buy more property because I am taking a more conservative approach. I do not believe in paying down the mortgages sooner, or buying with all cash, but I am a little more conservative.

They Work Full-time Outside of Real Estate
Being a smaller investor and not necessarily having huge amounts of cash flow means that often mom and pop investors make the majority of their income through other means. I have also noticed that many retirees also are mom and pop investors.

My full-time job is in law enforcement, and while I love real estate, I would prefer to not work in it full-time as of right now. Interestingly enough, my first landlord when I moved to Omaha was a retired police officer.

They Self Manage
This is the one area where I don't personally follow the standard 'Mom and Pop Investor' model. I have spoken to many mom and pop investors and they take great pride in managing their properties directly. They rightfully believe that no one will care more about their property than they will and they are able to increase their profits by not having to pay property management.

Since I have a very demanding career, I chose to hire property management because I knew that I would be unable to attend to my tenant's needs in a timely manner.

They Handle Rehab/Maintenance/Repairs
Many mom and pop investors prefer doing the work themselves. We all know just how expensive it is to hire out even small jobs, so to maximize their returns, many mom and pop investors will do some of the work themselves.

As a personal example, I did a lot of the rehab work on one of my latest properties myself, saving me thousands of dollars and teaching me some great handyman skills.

They Primarily Invest Locally
Mom and pop investors know their markets well and capitalize on that fact to find good deals. On top of that, since the majority self manage, they know that they need to live close to their properties to be the most effective.

While I own properties out of state in Arizona, I bought them at the time when I actually lived in Arizona. I actually lived in my 4 plex in Tucson for a year since I bought it with an FHA loan.

They Are More Flexible With Tenants
This can be good in some instances and bad in others. Mom and pop investors are known for being more flexible when it comes to the many unique situations with concern to tenants. Just as an example, I had a tenant applicant who wanted to park his semi-truck in my yard. I told him that I may be able to find a way to accomodate (for a fee of course).

Another example is an elderly tenant in one of my units who lives on a fixed income, social security. I agreed to not raise her rent for a year at lease renewal since she always pays on time and has been a tenant for over 4 years.

This same flexibility unfortunately means that sometimes tenants are able to take advantage of mom and pop investors, so some of them will have horror stories about nightmare tenants and evictions.

When it comes down to it, many mom and pop investors were able to use real estate to pursue financial freedom. I proudly admit that I now am one of them. While our techniques aren't flashy or sophisticated, they are effective. I should also mention that many of the more advanced investors started off using mom and pop techniques. In the end though, they are part of what makes real estate accessible to almost anyone.

Anthony Gayden

Podcast Guest on Show #21

4 Votes