Passive Or Active Real Estate Investing
Passive Real Estate Investing involves investing in opportunities that don’t require a lot, if any, management. This includes investing in REITs, crowdfunding, and real estate funds that don’t involve owning an actual piece of real estate. However, if you’re interested in putting your money to work in a specific property or investment type that requires some active involvement on your part, you can still do so.
Active real estate investing involves directly purchasing and managing a single or multiple properties. It can also include investing in the stock of a public company that has a significant portion of its business related to real estate, such as Howard Hughes Corporation or Macy’s. These companies typically report their earnings in quarterly reports. Regardless of the asset class or whether you’re buying stocks or owning an actual property, both types of real estate investments have their own unique benefits and risks.
The advantage of an active approach is that it provides a higher level of control for the investor. However, this often comes with a greater time commitment, as the investor must be familiar with local market trends and values, perform due diligence on each opportunity, locate properties with good cash flow potential, and arrange financing.
In addition, there are many responsibilities associated with being an owner, including collecting rent, managing maintenance issues, and overseeing tenants’ evictions. Moreover, the down payment required for an active investment can be more substantial, as individual investors must contribute their own capital and may need to find a partner or group of investors to help fund the project.
The advantages of a passive real estate investment approach include less risk and lower up-front costs. Investors can participate in private equity real estate or REIT investments that are managed by experienced teams. These professionals know what it takes to identify and close real estate deals and can make the right decisions on your behalf to maximize return while minimizing risk.
Another benefit of passive real estate investing is that it allows the average investor to put his or her capital to work in real estate that would otherwise be out of reach. For example, few people can afford to buy a high-rise urban apartment community outright, but they can invest in a REIT or crowdfunding real estate deal that owns and manages a similar property.
While the advantages of both approaches to real estate investing are compelling, the choice ultimately depends on the individual’s preferences and personal circumstances. Each strategy has its own pros and cons, and investors should carefully consider them before selecting the best fit for their situation. To learn more about these investment options and how to analyze them, download our free guide on Passive Real Estate Investing.