Active Investing or Passive Investing?
On the surface level, investing is just that…investing. But when you dig deeper there are really two ways to get involved — active investments and passive investments, and t’s fairly straightforward. You’re either actively involved in the investment, or you’re not.
I’d like to dig into the advantages and disadvantages of each.
Like I said, this is the type of investment where you actually have a hand in the process. This could look like real estate, for example, where you’re actively searching for properties, acquiring them, and then rehabbing. Once that’s done, you’re also charged with finding tenants, and then managing those tenants. In some instances, you may hire a building manager, but you’re still involved in what they do, essentially managing them.
Overall, active investing requires a lot of time and attention in order to achieve success. It’s not just an alternate income stream, it’s a second job.
Additionally, active investing requires the proper knowledge and skill-set — for you and your team. Because let’s face it, you’re likely not doing this completely alone. You’ll have contractors, managers, lawyers, and others involved to some degree. And if you aren’t knowledgeable about the different housing markets, nor what goes into this type of investment, success will be difficult.
Active investing can yield high rewards, but you must be realistic about your ability to put the work in.
One of the greatest attributes of passive investing is that you can be involved without sacrificing any additional time. So if you have the capital, but can’t really take on a “second job,” passive investing may be for you.
Even better, is that you can get involved real estate, too. Passive investing is not just for the stock market.
Instead, passive investing in real estate (or any other market) involves leveraging of other people’s knowledge and skillsets. A turnkey real estate company, for example, will do all the legwork of finding, buying, and fixing up the property. They also make sure to find tenants and manage the tenants.
In turn, you receive a cash flow from the property every month, without needing to be actively involved.
This way, you can still reap a lot of the benefits of a certain market, regardless of your personal time constraints.
I’ve been involved in both sides, and I’d like to share a story with you.
When I started working in real estate, I started from the ground up. First, I was basically doing maintenance, painting apartments and helping with turnovers. Eventually, I found myself managing a portfolio of multi-family units for a private real estate company, which spurred me to get my brokerage license.
What I realized, however, was that the company I worked for had the inside scoop on every suitable property on the North Side of Chicago. There wasn’t a single building they didn’t know about, and they were practically guaranteed to acquire any property that fit their criteria. In fact, they were on everyone’s radar, and when people needed to sell, it was common knowledge to call this company.
There was no way to compete with them.
So I considered alternatives — how could I get in on the same deals they were getting?
And guess what? I realized that it was possible to access the best deals by partnering with the best operators in the business and investing alongside them. Rather than competing, all I had to do was partner. That’s the benefit of passive investing.
It’s not that active investing isn’t worth your time — but the above story illustrates why you must be knowledgeable about the markets you’re interested in. So do your research, and know when to invest passively and when to invest actively. And if you’re interested in having many sources of cash flow, consider passive investments your friend.
Live your Freedom, Live Your Legacy, On Your Own Terms,
M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/