The Two Types of Real Estate Investors

When we talk about how to invest in real estate and who invests in real estate, we usually focus on two specific types of real estate investors. You’ll likely fall into one category or the other, but don’t be closed off to the entirety of the information, as there could be some overlap. 

Once you figure out what type of real estate investor you are, you’ll understand a little more about your situation – and have a better idea of where to start in building your personalized investment strategy.  

Investor Type 1: The Accidental Landlord 

The first investor type is what we call the “accidental landlord.” This term means exactly what it sounds like; these people became landlords by accident. If you’re trying to figure out how to invest in real estate without buying property, this might be you. 

What types of people fall under the “accidental landlord” umbrella? One example would be a situation where the investment property someone chooses to rent was inherited from a family member who passed away. 

In other cases, the investment property is a house someone already owns but has decided to rent because they’ve been transferred somewhere else for work but don’t want to sell, or they need to buy a larger home and want to hang onto their smaller home and use it as another source of income. 

We’ve encountered this type of investor in working with people who are in the military and have to move somewhere temporarily – maybe on a one-year contract – and want to rent their home while they’re living somewhere else. 

If you have a home that you know will appreciate well, or you know you could get enough money to cover the mortgage payment (and then some) because of rent prices within the neighborhood standard, the decision to make a property an investment property happens because someone thought their asset would be a good way to make money, not necessarily because they wanted to get into real estate investments. 

My daughter is a prime example of this investor type. 

She paid a little less than $30,000 for a little two-bedroom house just outside of town. She had a great mortgage and set herself up to pay half a payment every two weeks. 

• This payment structure helps you make 13 payments in a year instead of 12, which knocks approximately eight years off the back half of your loan. 

Even by doing that, her mortgage payment was extremely small because it was a $30,000 home. After she got married and started thinking about having kids, she and her husband knew it was time to get a bigger home. 

However, due to the progress she’d already made on the mortgage and the fact that the payments were small, she knew she’d be able to keep that home and buy a second property. That first house wasn’t big enough to satisfy her long-term needs, but it was too good to let go of – and it made a great investment property. 

My daughter didn’t buy that home as an investment property, and it wasn’t necessarily ever her intention to use it as an income property. Her situation changed, and she decided to take advantage of this asset she had in her portfolio that she didn’t need as personal property anymore. 

She’s been renting that house ever since she and her husband bought their new home, and she’ll have the mortgage completely paid off soon enough. 

• Accidental landlords can become the second type – professional landlords – down the road as they gain more experience and become more savvy about the business and how everything works. 

For example, if you have a good experience with your first property, you might be a little more intentional and use the money you’ve made to buy a property that’s strictly for investment purposes. Poof! You’ve just become a professional. 

Investor Type 2: The Professional Landlord

Professional landlords are on the opposite side of the coin, so they’re a little less complicated to explain. 

• A professional landlord has investment properties that have been purchased for the sole purpose of investing. 

However, they may have started as accidental landlords. 

Unlike the accidental landlord, these investors purchase with intention – and they may have bigger goals for their overall bottom line. Where an accidental landlord may have decided to rent a property that they inherited – and the mortgage is already paid off – a professional landlord goes into buying properties to make money off of them. 

Therefore, they have a few different considerations to make. They likely have a full mortgage to pay off, so their rent price will have to reflect their need to pay that off – but still turn a profit. 

Conversely, someone who has either already paid their mortgage in full or didn’t have one in the first place. Someone who has a very low-cost mortgage might not have such lofty aspirations for how much money they need to make, and would rather just have a little extra padding in the way of monthly income because they’d rather not sell the property. 

This type of investor has to deploy a different strategy because they potentially have a higher monthly cost associated with retaining and managing that property. That’s not to say accidental landlords don’t have costs because there are always costs to consider, but they might differ depending on how much the mortgage costs, how much they’ve already paid on that property, and their overall financial goals and obligations. 

Final Thoughts

If you’ve decided to become an investor – in real estate or anywhere else – you likely have some goals you’ve set for yourself. After all, an investor’s primary objective is to make their investments, and the time that goes into managing them, pay off. 

You want to make money. 

Every person who invests in real estate will be influenced by their own set of personal goals – and that’s why you need a personal strategy. 

We can’t just talk about generic, one-size-fits-all strategies. Instead, you want to consider a few things, like your budget, where you’re at regarding your experience with investing, and any sub-market niches that are available to you. 

• When you enter into the world of real estate investing, there are many variables to consider. It’s crucial to remember that no two real estate businesses are going to be the same. 

So, especially if you’re in this business for the long term, you need to cultivate a strategy that takes your goals into account and is created around those benchmarks, which are unique to you.

Knowing what type of real estate investor you are is only part of how to determine the best strategy for how you approach this important investment you’ve made. Whether you’ve come into this business by accident or you planned to be here the whole time, being able to outline your goals and know the why behind how you got here is vital information that will help you have a rock-solid approach to a (hopefully) highly successful business.