Here are some things to take into consideration. . .

The difference between passive and active investing in real estate is even more important than when investing in other asset classes. It takes a level of knowledge and know-how to be actively involved in your investment, but you can easily be whichever you want. That’s up to you.

Let’s break down some pros and cons of passive versus active investing in real estate so you can see which one suits you. But first, what is passive and active real estate investment?

What is Passive vs Active Real Estate Investing?

Passive investing, when it comes to real estate, is the act of putting your capital toward a property which is managed by someone else.

In this case, there are syndication groups which use your capital to grow a property into a higher yielding investment. Along the way, you get to reap those gains and exponentially increase your returns over time without ever lifting a finger.

Many people find this style of investing favorable over active real estate investing which is much more hands-on.

For active investing in the real estate industry, an investor is more involved in the day-to-day decisions and on-goings of the property. This could mean a multitude of hats are worn by the investor.

Let’s take a look at some pros and cons of each style of investing.

Passive Real Estate Investing

Types of Passive Real Estate Investments:

Private equity funds (syndication groups)

In private equity funds or syndications, there is normally a management team who does all the heavy lifting and uses a pool of investors to increase value.

Pros:

• On top of the cash flow dividend payments, you can participate in the upside (share in the profits) upon sale, generating higher than average returns
• You can analyze each property on its own and the details of it and only invest in those properties that meet your criteria.
• You feel more like an owner. A good syndication group provides consistent reports, financials, pictures, and sometimes videos to show you how your investment is growing and how well the business plan is being implemented.  This will help educate you if you are looking to learn the business or feel like you’re more involved.

Cons:

• High entry cost – syndications usually have a $50k minimum and sometimes higher.
• Some deals will only allow accredited investors. Non-accredited investors will need to seek out good operators and deals and establish a relationship with them before investing.
• Your investment is illiquid while the property is owned (hard to get your money out early)

REITS

REITS are best for those who don’t want to leave the stock market but still want to diversify. That is because REITS are simply mutual funds of real estate assets. The formula here is, the more you’re invested in, the less likely it is to fail.

Pros:

• Invest and forget about it. Very passive.
• Gives you exposure to the real estate industry with the ease and advantages of investing in a publicly traded stock.
• Provides dividend-based income
• More liquid than a syndication (easy to get your money out if you want to)
• Can invest with little money

Cons:

• Returns are not typically as high as syndications
• They tend to be affected by the swings in the stock market
• Tax benefits are not as robust
• You don’t have a say in which properties you invest in
• You will learn very little about the real estate business by investing in a REIT

Active Real Estate Investing

Types of Active Real Estate Investments:

House-flipping

Flipping a house in the real estate industry means purchasing a property as low-hanging fruit and increasing the value of it by renovation. Once enough improvements are made, the property is sold for profit at a higher selling point.

Rental properties

This is probably what most imagine as active real estate investing. Imagine yourself as the landlord here. It’s your job to take care of things at your property when they need taken care of.

Pros:

• You take home the lion’s share of returns (minus expenses, you take all returns).
• You get better and earn more as you become accustomed to the industry.
• In many cases, you learn to be a ‘jack-of-all-trades’.

Cons:

• It can be stressful to manage your own property.
• There will be many setbacks along the way especially for newbies.
• It will keep you busy (if you were thinking otherwise).

Which Type of Investor Are You?

Active investing in the real estate industry is a skill that takes time to learn. Many active investors spend years learning the business and teaching themselves a plethora of one-off skills.

If you are an active investor, you have to have patience. Returns don’t come in overnight. Oftentimes, active investors won’t earn a penny for years on-end as they wait for their investment to mature.

However, if you are in the business to learn the tricks of the trade and are genuinely interested in real estate as a part-time career or passion, there is no better way to invest in real estate than as an active investor.

But, if you are like most investors in the real estate market and are looking for a way to diversify your portfolio without breaking a sweat, you’re more likely a passive real estate investor.

Passive investors don’t mind trusting the wisdom of experts with their capital. They would rather lay the money down and spend the rest of their time soaking up the sun in early retirement.

They’d rather be involved in a syndication group which can flip your investment into profit without you ever making a single decision.

Investing in Real Estate

No matter if you are into active investing or you would rather hang out on the sidelines, the important thing is you see the potential in real estate investment. As long as you see that, you’re on your way to a low-risk, high-reward level of return for years to come.

For more info on creating passive income in real estate, text RHINO to 66866

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