Passive Investment vs Active Investment vs Business

General Real Estate Investing
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Passive Investment vs Active Investment vs Business

Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

Passive Investment, Active Investment, Businesses

Passive Investment

1. REITs

2. Performing mortgage notes

3. 3 N properties with quality tenants

4. Limited Partnerships Interests

Active Investment

1. Rental real estate with property management company

2. Non performing mortgage notes

3. Tax Lien Investing

Businesses

1. Fix and Flip

2. Wholesaling

3. Rental real estate self managed

4. General Partner / Syndicator / Fund Manager

5. Hard Money Lending

Private Mortgage Financing Partners, LLC
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3d

Great post. The one thing I always tell people about the items that are listed under passive investing is that passive investing is passive when you invest but you should be very active in the due diligence of what you invest in (and not rely solely on someone telling you where you should invest) 

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  • Vaibhav PuranikPro Member
    Member since 2025 · 44 posts · 19 votes
    5d

    Just be careful on what's the definition of Passive and Active. These can be our colloquial definitions, but for IRS purposes they are different. IRS considers long term rental as passive in general.

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    • Don KonipolBusiness Member
      OP
      Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
      4d

      Good point about IRS. I wasn’t thinking in tax terms, just in how we operate and our real or actual involvement.

      Private Mortgage Financing Partners, LLC
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  • Igor Ganapolsky
    Englewood, NJ · Member since 2018 · 356 posts · 61 votes
    4d

    Don, I do tax deed auctions in Florida, and I'd argue they're even more active than tax lien investing. With tax liens you're buying a certificate and waiting for redemption. With tax deeds, you show up at the auction, bid with certified funds, and if you win, you have 24 hours to pay in full. Then you spend 6-12 months going through quiet title before you can sell or sometimes even rent.

    That puts tax deed auctions squarely in your "Business" category alongside fix and flip and wholesaling. The hands-on work is significant, but the compensation is immediate equity since you're buying at 30-50 cents on the dollar.

    Vaibhav makes a good point about IRS definitions too. The colloquial passive/active spectrum doesn't always match tax code. A rental with property management might feel passive day-to-day, but the IRS still treats it as passive activity for most investors. The real distinction is how much of your time and decision-making goes into each deal.

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    • Don KonipolBusiness Member
      OP
      Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
      4d

      Igor, I appreciate your point. In a mass generalization like I just posted, you can’t include every different scenario. Even the most passive investments can be a “business” for the person sourcing, evaluating, rising capital for and managing the investment.

      Private Mortgage Financing Partners, LLC
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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3d

    Great post. The one thing I always tell people about the items that are listed under passive investing is that passive investing is passive when you invest but you should be very active in the due diligence of what you invest in (and not rely solely on someone telling you where you should invest) 

    7e investments53 Reviews
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  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    1d

    But what about Triple Net deals with high quality tenants and limited lease term left?
    What about syndications where I am just a part-time capital raiser for someone else who pays me commission on the amount raised even though I am not licensed?
    What about if I am flipping with a partner who handles the construction, but I handle the design and capital and sometimes make Home Depot runs?
    What about if I join a mastermind for Subto and then partner with someone else and then we split the work, but I am only doing some of it?
    What if I BRRRR and handle the renovation part, but then outsource the management once the renovation is complete?

    Love it, Don. As you already saw, this only opens up more questions from people who think their "label" of how they participate in real estate is more important than the actual actions they take and results. You should really launch a course. Charge $500 to have members type out what they do in real estate and you decide what they should call themselves...

    It is like the people that used to post (maybe still do) about what they should call their new company that they are thinking about forming. Where they should form their LLC with no assets, and how many shells they should create to make sure that their tenants of the houses they don't own can't figure out who they are. And then what states they should form those LLCs in.



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