To be included on an investment or “real estate deal,” an investor must contribute either time, experience/knowledge, or capital. Each investor needs to decide which role best suits their lifestyle, financial situation, and/or experience.
Many people start as passive investors because the capital role is satisfied and then move into active investing roles as they gain more time and/or experience. Some investors play two roles or often transition from providing one or the other depending on the deal. Each role, be it time, experience or capital, is needed for successful investment opportunities in the real estate sector.
Deciding how to invest comes down to the following criteria:
1. Time : How much time do you want to spend on your investment?
Passive investors are looking for stability and long-term growth. They typically don’t have the time to monitor their investments closely or make day-to-day decisions.
Active investors, on the other hand, are usually more hands-on. They’re often involved in the day to day and will to commit time upfront for the project.
2. Knowledge- How much do you know about real estate investing?
Passive investors are usually content leaving the investment decisions to someone else. They tend to have less knowledge about the real estate market and sector.
Active investors, however, are often more knowledgeable and make their own investment decisions. They’re also comfortable taking on more risk.
If you don’t have the time or knowledge to be an active investor, being a passive investor might be a better fit for you. However, if you’re looking to be more involved in your investment and are willing to take on more risk, being an active investor might be a better role.
3. Capital : How much money do you have to invest?
Passive investors typically don’t have a lot of money to invest. They’re often looking for stability and long-term growth.
Active investors, on the other hand, often have more capital available as this is typically their primary income.
4. Risk/Responsibility Tolerance: How much risk and responsibility are you willing to take on?
Passive investors are looking for stability and long-term growth. They’re often not willing to take on a lot of risk or responsibility.
Active investors, however, are often more willing to take on both risk and responsibility for the potential of a higher return.
5. Location:
Passive investors can invest anywhere in the world. They’re often not as concerned with the location of their investment.
Active investors, on the other hand, are often more local and focus their investments in a specific area or region.
6. Career/Passion/Purpose:
Passive investors are usually looking for stability and long-term growth. They’re often not as concerned with the location of their investment. Active investors, on the other hand, are often more local and focus their investments in a specific area or region.
There is no right or wrong answer when it comes to investing.
So, which is better? That really depends on what your goals and objectives are.