Active vs Passive investing - What is your preference and why?

Question

Hey all,

I was curious how the rest of the BP community approaches the options  between investing in active opportunities versus passive opportunities in real estate investing.

Active Investing - Being the leader of the team to acquire and manage real estate investments.  Actually working in the business of finding the deals and creating the profit or revenue stream.

Passive Investing - Investing money into other active investors' opportunities.  This could include providing financing, real estate syndications, etc.

Do you do one type or the other?  Do you diversify by opportunity?

I would love to hear from everyone!

Kristi Kandel · Answer

Active: Better returns and more control on the process. If you have the time that's the fastest way to scaling up your business and returns.

Passive: if you don't have the time, have the capital, and want to diversify, then passively investing in RE is a better option. This could include private money lending and syndications.

Time really is the driving factor.

Dave Foster · Answer

Active fuels my soul.  Passive feeds my retirement!  Real Estate IS life :)

Jim Pfeifer · Answer

I have done both - I started as an active investor.  I wasn't good at being an asset manager and my properties never cash-flowed as I expected.  I made money because the market went up during those years.  I changed to passive investing and now I hire an asset manager to manage the property.  My job is to find and vet operators and analyze deals - after that, I just collect (hopefully) distributions and read reports as they come in.

There are benefits to both, but I think you need some sort of competitive advantage to be an active investor - specific market knowledge, ability to swing a hammer, ability to find and rehab properties - something that gives you an edge over the competition.  If you don't have that advantage, your returns might still be OK but you won't be able to beat the returns of a passive investor.  When I made the change to fully passive, I thought the performance would be lower.  It hasn't been - I believe that's because I am hiring asset managers who are full time real estate professionals who focus on an asset class in a specific market.  There is no way I could compete with them even if I was a full time real estate investor and I certainly couldn't replicate the diversification I get by being a passive investor in multiple asset classes and markets.

I am certain, and this Forum confirms it, that many people can be successful as active real estate investors - but being active isn't required to earn quality returns and achieve financial freedom as a real estate investor.

My advice - figure out your strengths and capitalize on them!

Chris Seveney · Answer

@Kevin Kohler

I do both. Active in what I love to do and passive for diversification.

For those that wish to be active, I will say the time you think you’ll need to spend versus the time you actually need to spend, especially when starting out is drastically different. There’s a lot more time and effort involved when you are active.

Mose Gebremeskel · Answer

I think a mixture of both works well. I do agree that time and money is a major factor in deciding. Active is great because it allows you to be in the driver's seat. If you're trying to deal with less hassle and spend money then go with passive.

John McKee · Answer

I do NNN investing on a part time basis.  I spend maybe 20 hours a week in the game of analyzing, sharing, and pushing paper around my desk.  No team and no property manager needed. NNN is the second most passive type of investing but gives you control and enables you to build equity. If I was younger I would be more on the active side of creating value add, flipping, partnering, building a team etc.

Joel Owens · Answer

Depends on what life you want. I make about 7 to 8 figures a year depending on variables with selling properties at various times and my brokerage NNN company I own.

The money is more secondary to helping people along with my daily quality of life. I am 48 years old now. In my 20's I read thousands of books and burned the midnight oil looking for every edge and angle to learn what others knew.

Now it's about what life I want to live on a daily basis that gives me constant fulfillment and bliss.

People ask if you have a lot of money why do you need more? This is often people that do not have it. Once you have it you like sharing your story and help enrich people's lives. You know the feeling of the path they are going down because you have done it before. You want to pay it forward. I get more joy out of helping people than making another million. The million is nice but doesn't feel like the first million made. Most people's thoughts about money can change as they age because time is a limiting factor whether 1 dollar net worth or 1 billion.

I remember when my wife and I were married we were so poor I had a Toyota Tercel all grey color rusted out and the springs no longer opened the front hood so I drilled in 50 cent metal brackets with screws to hold the hood down. Everything at our wedding was donated pretty much. Someone gave us a gift for one night to a fancy hotel for our honeymoon. I remember we went thru drive thru of Taco Bell and drove to the hotel and parked and looked at highway cars going by while we ate. Some memories stay front and center forever. It helps keep you humble, focused, and always appreciate the good parts of your life.

There will always be challenges but that's part of the journey.

I basically do 3 things.

1. I broker NNN deals with buyer clients as a principal broker that owns my company NNN INVEST.

2. I take some of that cash and buy value add NNN deals to own myself directly.

3. I syndicate where I am general partner and my LP's invest with me passively

Kevin Kohler · Answer

@Jim Pfeifer you make good points and would love to hear more about your journey on the passive side.  I agree that returns are completely achievable as a passive investor, and I think it boils down to an investor understanding how to mitigate their risk via selecting the appropriate sponsor team etc. It is important to pursue due diligence whether you are buying the building or investing with others that are buying it...

Ronald Rohde · Answer

Active until I die. RE allows you to scale down as needed

Ronald Rohde · Answer

You are still young!

Active vs Passive investing - What is your preference and why?

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