Put simply, there are two approaches to investing in real estate: passive investing and active investing. While both methods put your funds to work within the real estate market, the amount of time and energy you put into it varies by approach. To understand which strategy best suits your situation, let’s review the differences between both strategies.
Passive Investing
Investors looking for a more hands-off approach to real estate investing will prefer a passive strategy. Passive investors often partner with a real estate investment group, providing an experienced advisor to invest alongside of and who can make critical decisions on buying, managing, and selling properties. No expertise or active management is needed from individual investors, thereby relieving them of the stress that comes with the day-to-day responsibilities of real estate investments. Passive investors can rest easy knowing their profits are growing and their investment is being managed by experienced, capable partners.
A few common types of passive real estate investments are:
- Multifamily housing
- Long-term rentals
- Real estate investment trust (REITs)
Active Investing
Active investing is a more participatory strategy for investors. An active investor is responsible for identifying and assessing potential property investments, purchasing properties, managing and/or improving properties and selling properties. These types of investments can be highly profitable, but they also require a high degree of knowledge and expertise in the real estate market. It is also important to note that with investments involving rental properties, active investors carry the responsibility of managing tenants and property upkeep, as well as maintaining compliance with any housing, zoning, or other applicable laws.
A few common types of active investments are:
- House and property “flipping”
- Wholesaling
- Short-term rentals
An active investing strategy requires investors to take more control over all property expenses and management.
Differences Between Passive vs. Active Investing
So which investment approach is right for you? While passive and active real estate investments have their respective upsides, each holds potential risks that can make or break individual investment goals. Here are the key factors any every real estate investor should consider when deciding between strategies:
Control
Active investors have complete control to alter or adjust their real estate investments as needed. As mentioned before, these investors have a wide variety of responsibilities including researching properties, securing tenants, property renovations, marketing and more. While this requires more time and effort from investors, active investing enables investors to play a defining role in their success and failure as they control nearly all aspects of the investment.
Passive investing requires less time and effort on the part of the investor; however, passive investors do not have the control over the investment that is enjoyed by their active counterparts. For example, a passive investor can decide which opportunity they want to invest in, but once they’ve invested, they typically have little to no say in how that property is improved, maintained or managed. As a result, prospective passive investors must carefully research the real estate investment company they want to partner with.
Time
Active investing demands a great deal of time and effort from investors to achieve profitable outcomes. Not only does it require time to procure, manage and sell properties – reporting and regulatory responsibilities demand even more time from active investors.
Passive investing requires little to no time from investors, as the properties are set up and managed by the investment firm. Thus, the asset grows alongside the other investment partners and investors reap the rewards when the advisor deems it is the right time to sell the asset.
Risk
For active investors, the more control over their assets they have comes with more risk. When research and results match, active investing yields great returns; however, if the investment performs poorly on the market, the portfolio is likewise affected, which could lose income for investors.
Passive investing, however, limits such risks due to how their accounts are managed by a general investment partner. The real estate managers you partner with reduce risk and maximize profit with their expertise and guidance. For example, investors partnering with Apta Properties on multifamily housing investments benefit from returns that are 2x the returns of historical stock market investments with less than half the risk.
Plan Your Investment Strategy with Apta Properties
When investors are deciding between a passive vs. active investing strategy, it’s important to know the differences and prepare accordingly. For those pursuing the passive path, be sure to find the best management firm to guide your financial assets. At Apta Properties, our team of experts have a track record of providing top quality guidance and management of multifamily housing investments. If you feel that a passive investment strategy is right for you, Contact our team today!
