Investing in real estate: ACTIVELY or PASSIVELY?
I’ve been approached by many people asking me, “How do you invest in real estate?”
When it comes to investing in real estate, there are more than one approach. Many people think that investing in real estate is somewhere along the lines of buying a property and hope it goes up in value or rent it out to get extra income. This is essentially the idea of “active investing”. Purchasing a property for cash flow is my number one priority and appreciation is the added bonus. This type of investing is considered “active investing” because you are the one who will be buying the property. This involves finding the property, negotiating the purchase, doing market comparables, doing your due diligence, applying and qualifying for a loan/mortgage, getting a lawyer to close the transaction, managing the property, dealing with the tenants, taking care of the property tax and insurance to make sure all bills are paid on time, etc… and the list goes on. As you can see, it’s a lot more work involved and a lot more responsibilities you have to take on when you are investing actively. You want to keep monitoring your investment to make sure it is successful. The reward in comparison to passive investing could be bigger but the risk is also bigger and the liabilities are even bigger too. As always, you need to do your homework first!
On the other hand, you can choose to invest passively. What I mean by that is you can choose to lend out mortgages or money to companies who invest in real estate. The work involved is minimal and you get a set return on your money. You are simply investing for a set return on your money rather than taking on the role of a “Landlord” or “Developer” or “Flipper” (or whichever role you take on when you invest actively). In other words, your money is making money for you without all the physical hard work that would be otherwise required for active investing. This is a good way for people who want to make money in real estate but don’t have the time or don’t want to get too involved. There are various strategies to invest passively as well. Check out our website under “Education” to educate yourself on some of the strategies that are right for you.
Regardless whether you decide to invest actively or passively, doing your due diligence first is the number one step before you put yourself or your money anywhere! And speaking to an experienced investor can definitely help! There are pros and cons to either type of investing, but if you are seriously interested in learning more, please contact us and we can discuss which way of investing is better for you.