Is Passive Real Estate Investing BETTER Than Active Investing?

Question

Is Passive Real Estate Investing BETTER than Active Investing?

When discussing real estate investing practices, the idea of active versus passive investing is often one that is the root of many heated debates amongst investors.

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Passive investing

1.) Less demand on investors time

2.) More stability and consistency

3.) Less control over the deal as a whole

Active Investing

1.) Complete control over buying

2.) Authority over all management and budget decisions

3.) Unexpected expenses and day-to-day stresses of management

4.) Usually a greater return on money from trading time

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I would say that the answer depends on your financial goals and your ability to trade more time to be active on a deal.

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What do you guys think about Active VS Passive? Should you be doing both?

Lamont Marable · Answer

My personal opinion...Active!!  I enjoy being on top with full control.  Though I would love to be on the LP side of someone's deal or a KP.  Though a KP isn't totally passive.

Frank Wong · Answer

Both offer something unique and there are benefits on each one. I prefer active and I want that control. I do own both and I have a 80/20 split. 80 Active 20 Passive. If things go down I want to be the one manning the ship no one will care about your money more than yourself.

James Kojo · Answer

@Lennon Lee : there is no "better" choice between the two, just like apples may or may not be "better" than oranges.

I do both and I LOVE both.

On the active side, I love going through market-analysis, acquisitions, operations, refinancing, marketing, hiring, rehab, building teams, systems analysis, repositioning... the lot! But here's the thing: it takes a crap-ton of time and energy to do it, and I only have so much of each. If you have a LOT of time and energy, and not necessarily so much money, I would recommend this route.

If I were big enough to hire a team to do all of that for me, would I still invest passively? TBH, I probably still would. There are still limits to what your own team can do in terms of operating across multiple markets. I have passive money in deals in Texas, Florida, Ohio, Arizona and more. That's already a lot of ground to cover for one team, and I'm not satisfied being limited to just those MSAs. If I smell an opportunity in a market shift, I want to be able to pivot without hesitation. Entering into a new market takes a lot of time and energy to do it right. IMO, it's better to give up some ROI and pay someone who is crushing it in the market already. but the thing about investing passively: you need to have money to make it work. :)

I hope that helps!

James Kojo

Tj Hines · Answer

@Lennon Lee I agree with you that it all comes down to their desired lifestyle they want to create for themselves. There are pros and cons to both, but neither bad in any way. Participating on both sides of the table can only help.

Lennon Lee · Answer

All day! Hands down 100% without a doubt.

Jon Schwartz · Answer

@Lennon Lee, is pastrami BETTER than corned beef?

John Fortes · Answer

@Lennon Lee great post. I think most operators nowadays are doing both, for the simple fact that if one comes from the corporate world, they have 401k funds to contribute to other operators passive deals.

With that said, GP's are typically investing alongside of the investor. So in this scenario, both is being achieved. But that isn't always the case in some models.

Per a podcast episode we recently recorded, you laid it out beautifully the path to passive to active.

Happy investing!

Michael Ealy · Answer

I do both.

I invest actively doing my own deals - apartment buildings and I still buy houses also.

Then I invest passively via private lending and I invest in syndicated deals for new construction.

New construction is very time consuming and profit is slower but the profit is a LOT more. But, I don't want to wait for the big payday without doing anything for the mean time so I buy apartments and houses actively.

So, yes, doing both can be done.

Nathan Gesner · Answer

Like nearly ever question revolving around real estate investing...it depends.

Some people like to stay busy. They like getting their hands dirty and the satisfaction of learning and finishing a job. Some people are penny-pinchers and would rather do something themselves to save 50% or more.

Other people value their time more than money. They would rather hire professionals to get things done quickly and correctly. They pay others to do the day-to-day mundane work and essentially buy their freedom to engage in other pursuits like another business, family, or hobbies.

The best thing to do is make a list of pros and cons, know what is really important to you and your goals, and then act accordingly.

I'm currently of the latter type. I can do a lot of work but I would rather focus on other things. I have a thriving business that demands a lot of my time. When I get off work, I want to relax with family, not stress over picking up materials or figuring out how to motivate my family to spend an entire weekend painting. I could make a better return if I did the work myself but I'm willing to give up that extra income in exchange for a different type of success. By the way, I'm hiring people to do the work but all the money is coming from the rentals so it's not technically costing me anything. The properties pay for themselves, to include all the expenses, and my time is free to pursue other interests.