Passive Investor Strategies vs Active Investor Strategies

[Don Konipol]

If an investor has the time, knowledge, capital and experience to be an active property investor then there are a number of strategies , that, depending on the economic market can be used to accelerate wealth building.  Some of these strategies (though not all, and possibly not the most profitable) are the subject of constant discussion on BP. 

But, what’s the best strategy for someone who wants to own property, but just as an “aside”; to diversify their portfolio, hedge against inflation, or build a retirement nest egg?

IMO, the best strategy for that type of individual is to purchase residential property in an area they are or can become familiar with; in an area where the neighborhood is “on the rise”, typically where demand exceeds supply and people are spending $$$ on fixing up properties.  Spend what’s needed to upgrade with reliable mechanical systems, roof that doesn’t leak, remediate all mold; interior design modernized; in other words a place that will attract a higher income no hassle tenant.  Then do a thorough research on tenant applicants (note: leaving this to a PM may be hazardous to your financial health) and choose the one that is most “stable” with the best potential for long term tenancy.

This advice is contrary to maximization of rental income, but IMO will reduce expenses of tenant turnover, property damage, property management fees so much that the difference in bottom line income will be quite small.  What the investor will have is a long term appreciating asset; that will provide an increasing cash flow as rental rates increase, and steady amortization as the note is paid down.  And a SUSTAINABLE approach to rental property ownership. 

What’s your opinion?