Passive and active real estate investing strategies differ in the level of involvement and control that an investor has in managing the real estate investment. Let’s take a look at the fundamental differences between these two strategies.
Passive Real Estate Investing:
In passive real estate investing, the investor takes a more hands-off approach and relies on others to handle the day-to-day operations and management of the investment.
Passive investors typically invest in vehicles like real estate syndications, real estate investment trusts (REITs), or crowdfunding platforms. These investments allow individuals to pool their capital with other investors and delegate the management responsibilities to professionals.
Passive investors aim to generate income and potential appreciation from their real estate investments without actively participating in property management or decision-making.
Active Real Estate Investing:
Active real estate investing involves direct ownership and management of real estate properties. The investor takes on a more hands-on role in acquiring, managing, and improving the properties.
Active investors may purchase residential or commercial properties, fix and flip properties for quick profits, or engage in rental property ownership.
Active investors are responsible for property selection, financing, property maintenance, tenant management, and dealing with the various aspects of property ownership and operations.
Active investing requires more time, effort, and expertise in areas such as property analysis, negotiation, financing, property maintenance, tenant screening, and property marketing.
At Glass Beach Ventures, we are firm believers that investors, who are typically quite busy with their W2 jobs, families, etc, should consider a passive real estate investing strategy for the following reasons:
Diversification: Real estate syndications typically involve pooling funds from multiple investors to acquire larger properties or portfolios. This provides an opportunity to diversify across different property types, locations, and investment strategies. Diversification can help spread risk and reduce exposure to the performance of a single property or market.
Professional Management: In a real estate syndication, the property is typically managed by experienced professionals, such as a sponsor or a syndication company. They handle the day-to-day operations, tenant management, property maintenance, and strategic decision-making. This relieves individual investors of the time, effort, and expertise required to manage a property themselves.
Access to Larger Investments: Real estate syndications allow individual investors to participate in larger and potentially more lucrative real estate projects that may be financially out of reach on an individual basis. By pooling resources with other investors, syndications can pursue opportunities with higher purchase prices, greater income potential, and potentially higher returns.
A Truly Passive Investment: Investing in a real estate syndication can be a more passive investment compared to owning and managing properties directly. Investors can enjoy the benefits of real estate ownership, such as potential cash flow and appreciation, without the need for active involvement in property management or dealing with tenants and maintenance issues.
Potential for Professional Expertise: Real estate syndications are often managed by professionals who have specialized knowledge and expertise in real estate investing. This can provide access to their market insights, deal sourcing capabilities, and experience in executing value-add strategies. Investors can leverage the expertise of the syndication team to potentially enhance investment returns.
It's important to note that investing in real estate syndications, like any investment, carries its own set of risks. Investors should thoroughly evaluate the track record and reputation of the syndication sponsor, review the investment offering documents, and conduct proper due diligence before committing funds. Additionally, individual investment goals, risk tolerance, and preferences should be considered when deciding between investing in a real estate syndication, buying individual properties, or investing in REITs.