Active vs. Passive Real Estate Investing

Did you know that you could make a real estate investment without committing any time? Passive real estate investing allows investors to reap the benefits of owning real estate without investing time and effort in active management. Most real estate investors can be in one of two categories: Active-Investors or Passive Investors.

What It Means To Be an Active Investor

Active investors are hands-on and fully engaged in the process from beginning to end. They find a property on their own, underwrite it, perform due diligence, arrange to finance, close the deal, and manage the asset once the purchase is complete. Active investors’ commitment level often equates to a full-time job.

Fix-and-flips and Wholesaling are two examples of active real estate investing.

When a person secures a piece of real estate through a purchase and sale agreement, an option to purchase, or another means, they are said to engage in wholesaling. They are then selling the other party the rights to that property. You aren’t technically buying or selling real estate in this situation. You buy and sell contracts related to that real estate, typically in exchange for an assignment fee.

What Does Being A Passive Investor Means?

A passive investor wants all the benefits of owning real estate, including cash flow, appreciation, and tax benefits, without the hassle of the added labor the active investor takes on. You invest in a real estate deal alongside several others to purchase a Multifamily property. Investors share the project’s risk and reward, each being paid a share of the profits accordingly.

As an individual investor, you are considered a “limited partner.” The only responsibility of an LP is to bring in the capital. The “general partner(s),” or GP, is responsible for finding and managing deals. The GP brings their real estate expertise in exchange for a share of the profits and is typically paid out only after the LPs have received their profits. This structure ensures that the interests of the general and limited partners are always aligned.

The level of daily involvement is often less for passive real estate investors.

Direct and indirect passive investments are the two basic categories.

A direct approach requires buying all or a portion of a property and employing a management firm to handle daily tasks. This can involve repairs, regular maintenance, and getting rent from tenants.

The indirect method is another type of passive real estate investing.

This entails investing money in a partnership between numerous investors, known as real estate syndication.

Which Is Better for Property Investment: Active or Passive?

Choosing between active and passive investments is a matter of preference.

It depends on your priorities, resources, and way of life.

What Level Of Control Do You Prefer?

As you may want to increase your control in an investment opportunity, this also increases your involvement with managing tenants, maintenance, and all of the other duties that are associated with asset management.

An active involvement may be preferable if you wish to control your investment.

But if you would prefer to sit back, relax and spend more time with family while your money works for you, passive investing is the way to go.

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