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Active vs Passive Investing (Making the Right Choice)

“Time isn’t the main thing, it’s the only thing” —Miles Davis

Have you been wanting to get into real estate deals? 

Are you wondering if you should be an active or passive investor? 

Or maybe you are involved in single-family investments and want to know how passive multifamily deals differ from what you already do. 

Getting involved in real estate investing is a smart move! The trick is to find the path that is right for your situation. 

That’s why I am going to break down the advantages and disadvantages of passive vs. active investing. That way, you can discern what is right for you. 

So let’s break it down!

Active Investing

In active investing, you are the one doing the work. 

This encompasses any sort of investment where you are in charge of the property. Even if you have someone that manages the property, that counts. 

Think about it. You are still the one getting all the calls and having to make all the hard decisions. Right? 

Active investments could be flipping, rentals, BRRRR, having a property manager, and turnkey rentals

The key takeaway is that this method takes a lot more of your time. 

Advantages

More Control

If you are the kind of investor that likes to have a lot of control over your investments, then active investments may make a lot of sense for you. 

When you’re in these investments, you are the one in charge. You get to steer the ship!

This is great for people that don’t feel comfortable trusting another person with their property. 

Leverage Your Time

Active real estate investments are perfect for people who don’t have a lot of money but have a lot of time on their hands. 

You can get into a property that is close to where you live, and you can do all the work yourself

This is a slower process, but for many people just getting into real estate investment, this is often where they start

You can take your time, make things right, and still work towards the goal of making a profit from your asset. 

Gain Experience

Plenty of people like getting involved in active deals to learn how the process works. 

It’s kind of like fixing your car. 

Even though I have ruined a few car parts in my day, knowing the basics has helped me so much in hiring mechanics. 

The same goes for real estate! Knowing how the process works allows you to better expand your skillset and knowledge for the future. 

Disadvantages

You Undervalue Your Time, especially if you’re wealthy or a professional

Your time is the most valuable asset you have. It is finite, but it is powerful.

One of the disadvantages of active investments is that you end up undervaluing your time

Think about all the things you could be doing with the time that is needed to make an active real estate investment viable. It’s a lot! 

This use of time translates to a loss of a lot of potential gains

If you are actively managing a property, you are not using your time for something else. This loss is even worse for people whose time is more valuable — those who are  wealthy or higher-paid professionals. 

Difficult to Scale

On top of its value, the limited nature of your time means you can’t scale your investments

There are only so many properties that you can manage at once before you no longer have enough time in the day to do the work. 

There is a cap to what you can do!

Time Intensive

This disadvantage is the one that hits home with me. You can’t ever really unplug from your investment. 

No matter what you do, or how far you travel, the buck stops with you

You are always in charge of the property, and you are always on the clock. That can be great for some people, but that is also a lot of pressure that you may not want in your life. 

Passive Investing

Passive investing is the opposite. These are deals where you are not the one doing any active management. 

Your work comes in on the front end. Your effort goes into doing your due diligence. You find and vet a deal, and then after you invest, you can be truly passive

Meaning… 

None of the day-to-day work, but you still get a return on your investment

Advantages

Little Time Needed

Right off the bat, the big advantage of passive investing is that you will have more time on your hands. 

Think of all the things you could do!

After the initial hard work of getting into a deal, you can sit back and watch the money come in. 

Scalable

Now that you have all this time, you can scale endlessly

You can take all the time that you would have spent working on the property, and you can use it to find more deals to be a part of. 

Because your time isn’t tied up, the only limit you have is how much you want to invest. 

You can scale as much as you want! 

Additional Tax Benefits  (Multi-Family Syndication)

On top of all the benefits to your time, there are also tax benefits. 

Specifically, in multi-family syndication, you can write off or defer some or all the money you are making through the deal. 

This is a unique advantage to these kinds of investments, and it makes them even more attractive to passive investors. 

Disadvantages

Less Control

The downside to not spending as much time working on the actual property is that you forego control over it. 

You don’t get to be the decision-maker. 

So if you are a person that likes that responsibility, then this may be a downside. 

Need Resources to do it (Minimum $50-100K)

As well, the barrier to entry is higher than some other investments. The usual minimum in these deals is between $50-100K

Not a lot of people have this kind of money laying around. But if you are a wealthy professional that has these kinds of resources, then this may still be a worthy option. 

Conclusion  

The difference between active and possessive investments boils down to one thing

Do you have more money or time?  

More money than time – Passive

If you are a high-paid professional, then it doesn’t make a lot of sense to do active deals. Your time is too valuable to be painting storm windows or buying up and managing a bunch of single-family homes. 

More time than money – Active

On the flip side, if you are younger or just starting out, then active investing might be perfect. 

You can learn so many things about real estate, and you can build a portfolio that will eventually let you transition to more passive deals. 

We should all aspire to passively invest. This is a revolutionary opportunity for professionals or business owners to make investments. You can grow wealth passively while keeping the most valuable asset to yourself — your time. 

Interested in learning more about passive investing? Then I have you covered with resources that will help you start your journey!

Check out our special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future. 

If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.

Bronson Hill

Bronson used to work as a consultant for a medical device company but switched to investing in apartment buildings to make his money work for him. He started with a single rental property that made good money and, after some advice from a family member, moved into bigger real estate projects. Now, he's all about helping others get into this kind of investment to earn money without having to work all the time. When he's not dealing with investments, Bronson loves to travel, write songs, stay active, and help fight modern slavery through his work with Dressember. He believes in working smarter, not harder, and wants to share how that's possible with everyone.

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