Aligned Ventures
12/29/2022
Real estate investing is one of the most proven methods of building personal wealth. In fact, more than 90% of the world’s millionaires have real estate investing somewhere in their portfolios. Many of them got their start by investing in real estate. While there was a time when real estate investing was only for the super-rich, those days are gone. Today, you don’t have to have millions of dollars in your bank account in order to invest in real estate.
However, there are still decisions that you need to make regarding how you want to approach your real estate investments. In addition to determining how much money you want to invest and choosing the type of property that you want to invest in, you will also need to determine how involved you want to be.
Understanding the difference in active and passive real estate investing is a crucial aspect of achieving success in the world of real estate investments. Today, discover the difference in these two investment strategies while also uncovering the benefits of each.
Active Real Estate Investing
If you have watched any of the home remodeling TV shows that have become so popular in recent years, you may have a skewed idea of what the “fix and flip” model actually looks like in practice. While “demo day” and other major milestones during the fix and flip process may look appealing, they actually require a great deal of work. In general, these shows depict active real estate investors. To be an active real estate investor, you must handle the improvements, maintenance and management of a property that you have invested in.
If you choose to be an active real estate investor, you will need to be prepared to be hands on during the entire process. It’s also important to note that active investing goes beyond tearing out cabinets and hanging new drywall. Obviously, if you are the person who is improving a property that you want to sell, you are actively investing in the property. In addition to your money, you are also investing your time.
Active real estate investing isn’t limited to rehabbing properties and then selling them for a profit. Another example of active real estate investing is found in being a hands-on landlord. Whether you buy a single-family home or a multifamily housing unit, you are an active real estate investor if you decide to handle maintenance, rent collection, advertising vacant units, and any other aspect of procuring the success of the property.
The primary benefit of active real estate investing is found in the fact that you don’t have to pay someone to do the work for you. Obviously, keeping more of the profits is nice. However, there are plenty of reasons to avoid this method of investing. First, if you are just getting a start in real estate investing, you probably have a job. It may not be feasible for you to balance the demands of your job with the responsibilities of managing a property.
Passive Real Estate Investing
Passive real estate investing is a great option, especially for people who are just getting into the world of real estate investing. When you passively invest in a property, you are not involved in the daily management requirements of your property. Instead, you allow others who are experts in the field to do what they’re best at while you simply sit back and wait for the checks to start rolling in.
Passive real estate investing reaches into every realm of real estate. For instance, passive investing in the fix-and-flip model involves hiring people to do the needed rehab on your subject property. Bringing in professional contractors, electricians, plumbers, and roofers can be costly, but it also improves the chances of your investment property’s renovations being done correctly.
If you buy a single rental property, passive investing involves hiring a property management company. For a monthly fee, usually a percentage of each month’s rents, these management companies handle any repairs that need to be performed on the property. Additionally, when there is a vacancy, these management companies handle the advertising, tenant screening, and every other aspect of managing the operational aspect of the property.
One of the most popular options for people who want to passively invest in real estate is real estate syndications. Syndications operate under the same process as crowdfunding, but are more legislated, which ensures that investors aren’t at risk of falling prey to a scam.
In real estate syndications, there is a sponsor (also referred to as a syndicator) who is responsible for determining which property or properties the syndication should invest in. This level of market research is hard to perform without an extensive background in the real estate industry. Once the investment properties have been identified, the syndicator then obtains funding from a pool of investors. One of the most appealing aspects of investing in a syndicate is the fact that you can Invest in much larger assets then you would be able to on your own. The syndicate then oversees the properties, manages them, and performs all the business-related tasks that must be performed to make the property successful. As an investor, you will receive a check at pre-determined intervals that is proportionate to the amount of money you invested.
While you can achieve success as an active real estate investor, it requires a great deal of industry knowledge, and most importantly, time. If you do not have the ability to devote all your time to a property, passive real estate investing may be the better option, especially if you opt for a real estate syndication. As a syndication investor, you are not responsible for any of the management or maintenance associated with the property. Instead, you are there to invest some money and reap the profits.
To learn more about how passive real estate syndication investing can work for you click the link below and schedule a call with one of our team members to discuss any additional questions you may have and if were the right fit for you.
