Close Popup Icon
https://diversyfund.com/passive-or-active-investor/
Advanced Investing

Are you an Active or Passive Investor?

Real Estate Investing can take many forms, all of which continue to cross over into one another as real estate investing continues passive investorto evolve. If you are looking for a basic distinction, we can begin by discussing the difference between an active or passive investor. Use this quick and useful summary to determine which type of investor you are.

Active Investors.

The primary purpose of active investing is to outperform the market. In order to do this, the investor must continuously monitor his or her investments to exploit market inefficiencies. This type of investing is very involved, but consistent success is rare, especially for an individual investor. The benefit of active investing is the potential to make higher than average returns. The risk is mainly the difficulty and rarity in achieving this, especially on your own.

Essential Daily Demands:

  • Active listing research online, studying the markets and/or zip codes you would like to invest in.
  • Tracking inventory and demand in these zip codes.
  • Researching sales prices versus offer prices.
  • Hiring a Realtor to stay on top of recently listed properties or researching inside pocket/off market listings.
  • Due diligence on the property you have chosen to invest in such as:
    • Hiring a property inspector.
    • Understanding the history of the property such a repairs, property management, and overall condition.
  • If the market you are investing in is extremely competitive, you may have to make your offer on the property and arrive with a purchase agreement before you do your due diligence.
  • Flip Versus Hold:
    • Flip: Hire a contractor to rehabilitate any property shortcomings. Depending on how much money you are planning to put into the property you will also need to hire an architect. When you are ready to sell your property you have to hire a realtor, market your property, and conduct sale negotiation.
    • Hold: Hire a property manager and purchase renters insurance.
  • Keeping track of all of your expenses that will benefit your tax write offs at the end of the year

Passive Investors.

Passive investing, on the other hand, does not attempt to outperform the market, only match it. This type of investing manages risk and focuses on the aspects of investing that are controllable. It focuses on long-term returns and emphasizes consistency and very little involvement. In addition, a diversified portfolio is imperative. The benefits of passive investing are stability, consistency, and a lack of involvement. The risks include missing out on potential active investing gains. In passive investing, you must be satisfied to never beat the market, but rather match it. If stability and lower risk are appealing to you, then passive investing is the best approach.

Essential Daily Demands:

  • Once you are finished doing your due diligence on your investment’s operator, you have no further demands.
  • You can simply keep track
    of your property by looking it up online if that is something you wish to do.

Now that you have a sense of what type of investor you may be, you are well on your way to start investing. However, the beautiful thing about investing in real estate is that you have the ability to wear a lot of hats. In this case, you may be at a crossroads and consider yourself both Active and Passive. If so, more power to you!

Related Articles

Your Ultimate Guide to Finding the Perfect Real Estate Investment Property
  • Advanced Investing

Your Ultimate Guide to Finding the Perfect Real Estate Investment Property

Investing in real estate is a great way to increase personal wealth. That’s why a majority of America’s wealthiest individuals have a substantial amount of their portfolio in real estate. Many investors turn to single-family housing to start making money right away. However, this short-term strategy may not play out as well in the long…

Why You Need Defensive Investments In Your Portfolio
  • Advanced Investing

Why You Need Defensive Investments In Your Portfolio

As the leader of your financial destiny, it’s just as important to invest money as it is to save it. Otherwise, inflation will eat away at the value of your hard-earned money. By investing a portion of your salary each and every month, you are building future wealth. However, it is natural for investing to…

How Tech Changed Real Estate Investing
  • Advanced Investing

How Tech Changed Real Estate Investing

Technology is an ever-evolving mechanism allowing the world of real estate investing to become more accessible. With technological advances, we’ve seen the evolution of an industry that was once very timely, costly, and exclusive open itself up to the everyday investor. Read on to see the role tech has played in putting real estate into…