Investing v. Working: Which Real Estate Strategy Requires the Least Amount of Effort?

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You say you are investing in real estate, but I’d bet on the fact that you are actually working in real estate. In fact, most people who think they are investing in real estate are actually working in real estate instead. I can hear you right now: “Wait, what? No, no… I’m investing in real estate.”

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Getting Started

There are several (or more) ways to be involved in real estate investing. Especially when you are just starting out, it can be really tough to sift through where to even get started because of how many choices there are of what you can do as a real estate investor. The good news is that all the choices are good. Whether you flip, buy rental properties, wholesale, do notes… whatever it is you end up doing, they are all good options and can all be very profitable. That’s the joy of real estate investing — there is something for everyone!

Now, the trick is figuring out what method to try your hand at. There are a lot of considerations in figuring out which area of real estate investing you will be the best at, and more importantly, which area you enjoy the most. For a more in depth explanation of some different facets of real estate investing, check out this article. If you read that article, you’ll see “Involvement Level” listed as one of the considerations for each method. That consideration is what I’m going to expand on here.

Alternatively, maybe you are already a long-time investor. This article may just help with some clarity, which can be good, whether you use it for general awareness or in assisting you to make a change. Or if you’ve been frustrated with any of your investing lately, maybe this will help explain something that is possibly contributing to the situation.

Investing vs. Working

If I look up “invest” and “work” on dictionary.com, I get the following definitions:

  • Invest: to put money to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation
  • Work: exertion or effort directed to produce or accomplish something; labor; toil

Straight investing is putting your money into something and getting returns on it (hopefully positive ones!). So your money is what brings in the return, not you. Working, on the other hand, means you (not your money) puts forth an effort into something in order to get a return.

If I break these concepts down into even simpler terms, I come up with:

  • Invest: your money is the means to the profit
  • Work: your effort is the means to the profit

I’ll go ahead and tell you right now, there is no means of investing that doesn’t require at least a tiny bit of work on your part. It’s impossible, unless you are literally just handing your money to someone blindly, and they are investing it for you — you never ask questions, and you get returns on it. But for the most part, every method of investing requires at least some work on your part, even if it means signing your name to something, keeping an eye on something, or even just figuring out what it is in the first place you want to get involved in. All of that is work. That’s okay, and just assume that to be the default level of work required with any investment option. However, once you start specifying different types of investments, you need to realize they all involve a different level of work on your part to make each one successful.

Related: Passive Real Estate Investing: How to Have a True “Four Hour” Real Estate Workweek

Now, are you ready to apply this?

Different Methods of Investing and How Much Work They Require

I’m going to jump right in and show you a few different methods of investing and the differences in how much work is required for each via a fancy-dancy graph. I think seeing the breakdowns more visually will help put this into perspective a little nicer, and then under the graph I will expand on each one. Hopefully doing that will help you see more clearly how investing and working tie in together. And again, the amount of work noted is the amount of work required to make the overall investment happen.

Ready, set, bam! (note: percentages are estimates)

investing vs work

Wholesaling

If you’ve read many of my articles, you know I don’t support calling wholesaling a method of investment at all. I only refer to it as one because it is so highly talked about amongst real estate investors — just about every newbie investor has considered doing it at some point or another, and for whatever reason, the majority of people do think it is a method of investing.

But the reality is: wholesaling is 100% work. It is a job. What people don’t realize is that if you decide to wholesale, it is simply taking on a new job in order to gain capital that you can then use to invest (that part being the reason people consider it to be a method of investing — because it is almost always because someone wants to get into real estate investing, but doesn’t have the capital to get started).

There is nothing wrong with taking on wholesaling, and it is an amazing way to learn the ins and outs of investing, but there are a ton of other “businesses” you can start if you are just wanting to build capital. But without going on a rant about why I don’t think wholesaling is a method of investing, just understand that success in wholesaling is 100% dependent on the effort that you put in. Your money does nothing for you in this method (unless you are doing some varied version of wholesaling; then you might use some of your own money).

Basic wholesaling = not your money. It’s all you.

Flipping

This is one of the most interesting balances of investing and working. It can actually be a little tricky to comprehend, but I’ll wait to explain why and just keep it simple here.

You all know how flipping works: you buy a property, you rehab it, and you sell it to someone else for higher than the amount you paid for it + what you spent on the rehab, and that is your profit. To successfully flip a property, you have to invest two things — money and work. The return on a flip is dependent on both of those things happening. Money is invested at the onset of the project, as well as throughout, and work is what gets the house rehabbed.

Rental Properties, With You as the Landlord

Rental properties technically bring in income with no work required on your part. Income from rental properties (in theory) comes in monthly, regardless of whether you did any work or not — whereas with flipping, for example, no income happens without putting work into it. Here, work is technically not required.

However, things do still have to happen in order for a rental property to continue functioning correctly, so that does bring in a little work (more like work to make sure it keeps working, not work required to bring in current income). Things like finding tenants, collecting payments, handling maintenance requests, and keeping the house intact. Those are ongoing tasks associated with properly managing any rental property. Those activities are work. Meaning, they can’t be done by putting money into them; they have to be done by putting your effort into them. As you’ll see on the graph, this workload isn’t huge, but it exists, and it can definitely take some time (especially 3 a.m. maintenance calls!).

If you landlord your own rental properties, these tasks are on you.

Rental Properties, Using a Property Manager

There is a way around you having to do the work of being a landlord, and that is by hiring a property manager. For a fee, a property manager will do all of these things for you. Property managers, aside from being helpful by taking that workload off of you, are also likely better versed on how to do these tasks better than you might be yourself. Maybe you have experience landlording and/or it’s a natural thing for you, but for a lot of people it isn’t. So having the option to outsource that work is great.

The downside to hiring property managers is that the majority of them out there really aren’t good, but that doesn’t mean there aren’t good ones out there, and it just takes a little time on your part to learn how to differentiate between the good and the bad managers. So having managers does require a small amount of work on your part (hence the graph) just in managing the manager, so to speak, but it is very minimal.

As you can see with the graph, methods of real estate investing vary in the degrees of how much work is required — from 100% work required to close to 0% required. And you can find methods everywhere in between.

Now, I can already hear some of you saying, “Wait a minute, I wholesale and flip and landlord, but I hire people to do most of the work for me so I really don’t spend much time at all doing work myself, and I’m still successful at it!” Well, first of all, that is excellent. My dream would be to be so knowledgeable in areas like wholesaling and flipping that I am able to do those, but only as the overseer, while other people do the work for me. That is one of the smartest moves anyone can make, not only just in real estate investing but with anything in life: outsourcing.

It’s wise to get other people to do your work so you free yourself up time-wise while you are still receiving income, which is what ultimately gives you freedom in life. If you have figured out how to do this, seriously, there is nothing better. But realize (and it doesn’t matter at all, but just understand) that you have created a business at that point. You are the boss, you have proxies doing all the work for you, and you receive the income. So you have succeeded, most definitely, but don’t confuse that version of wholesaling or flipping with straight investing — because it’s actually a business.

Taxation of Investments vs. Working

To further encourage all of this, you can always look at the tax implications of each method. Seeing those will further encourage this idea of investing versus work because the IRS categorizes all income as either active income or passive income. Active income means, just as it suggests, effort had to go into making that income (i.e. work). Passive income means, technically, no work is required in order to receive that income (i.e. investment).

Related: 3 Key Lessons for Avoiding The Dark Side of Passive Income

Wholesaling and flipping income will always be taxed as active income. Rental property income is taxed as passive income. Why does it matter? Because the tax implications of each are extremely different. Passive income brings in a tremendous level of tax benefits to the investor. Active income is just the same as how you get taxed with your W-2 job.

Taxation of each method of real estate investing is something every investor should at least understand and be aware of, but it will doubtfully be a deciding factor when you choose what kind of investing you want to do. More of the point of bringing it up is to say that even the IRS thinks a lot of investing methods require work!

What Does it Matter?

It doesn’t. Well, I mean, it does. It does matter in the sense of you deciding on your goals as an investor and choosing how to meet those properly. Most people don’t realize how much of real estate investing is a job (finding motivated sellers, rehabbing a property, managing a property, etc.). Like I said, there is nothing wrong with that — unless you are unaware of it and it goes against your goals.

For example, one of my goals is total lifestyle design. I don’t want to spend one minute working for my money if I don’t have to, so my ultimate goal is passive income. That’s my only goal! So it wouldn’t make sense for me to flip properties or wholesale because that would require me to work. I went the route of buying rental properties and using a property manager to run them because that is about as passive as you can get in buying real property (versus buying notes or stocks). And I love it! So it does matter in the sense of you deciding on your goals and what methods of investing best fit those.

Just realize (and this is the part that really doesn’t matter if you don’t care) that the income you receive from flipping a house, for example, isn’t all profit received from just investing. A lot of it likely is, but some of that income is compensation for the effort you put into working on that investment. It’s like getting paid to do a normal job — your time is worth X amount of money per hour, so you get compensated that amount for the hours you put in. That is the same here. You put work into flipping a house, so part of that income is just like hourly pay from any other job.

If you landlord a rental property in order to avoid the 10% monthly fee of using a property manager (let’s say it’s $100), that $100 you are saving is really just the same as compensating you for the time that you put in to do the work to keep that property functioning correctly. Some months you may not put in any work (yay!), but other months you will put in a good bit of time, so you have to weigh if “earning $100/month” is worth that time. Would you accept a regular job that pays you that amount for the amount of time you spend on it? Maybe, maybe not. Just be sure you are looking at it in perspective.

How about you? Where do you fall in the spectrum?

Be sure to leave a comment below!

About Author

Ali Boone

Ali Boone(G+) left her corporate job as an Aeronautical Engineer to work full-time in Real Estate Investing. She began as an investor in 2011 and managed to buy 5 properties in her first 18 months using only creative financing methods. Her focus is on rental properties, specifically turnkey rental properties, and has also invested out of the country in Nicaragua.

34 Comments

    • Ali Boone

      Totally agree Lisa! I am a huge believer in everyone figuring out what they are good at and pursuing that, rather than going against your grain and fighting to do something that doesn’t come naturally. I vote anyone who enjoys doing handy work and managing tenants and such to absolutely do that! Great experience and for those who enjoy it, a lot of fun.

  1. I flip and I’m also a landlord of 16 years. I manage all my own properties as well as my parents triplex. You are correct that all these options take time and effort. Since I have a crew of guys I have working on my flips I can usually send them to one of the properties if there’s an issue. Flipping like you stated is does require work on your part if you don’t hire a general contractor which could be cost prohibited. Although a lot of the time I can set my own hours I do get tired of the countless trips to Home Depot and lowes!! I would rather spend my time hunting for more deal. My goal much like yours is to outsource myself by finding someone to replace me. Some smart guy once said a quicker way to success is to ” work on your business not in your business”.
    Great Article……I’m going to store this one with the gems I often go back to reread.

    • Ali Boone

      Awesome Angelou, and sounds like you have a great business going for yourself! And I couldn’t agree more with that quote- eventually move into managing the business of it getting done rather than being the one to do it. That’s how you build an empire! And no better way to do that successfully than having worked inside of it yourself first. Now you’ll know exactly what needs to be done (versus managers who have never done the dirty work of a business themselves…they are horrible at instructing!)

  2. Susana la

    Great perspective. Kudos to you for leaving corporate and really embracing investing. Would love to hear more about investing out of the USA. I love to travel and found Nicaragua enchanting + I know it has great investment opportunities- if you know what your doing. Working f/t, its difficult to find what it takes to do the research to meet my comfort level. But in years to come… Smile…

    • Ali Boone

      Smile! I love it Susana. I actually haven’t done anything with Nicaragua in about a year, but there are definitely opportunities down there still. I was working more with the beachfront developments (very hands-off), but there are plenty of individual properties down there too. The trick really, and to save time, would be to find someone down there who is easy to talk to and can help you with the research. Like in San Juan del Sur, for example, I know of a husband & wife who are from the States but have their own brokerage down there. So someone like that would a) be able to speak English fluently, b) understand your concerns and what you would need to know in order to buy down there, and c) explain the risks and other logistics being that you don’t live in the country.

  3. Adrian Tilley

    I think what’s missing from this discussion is the “flipping/wholesaling as a business” aspect. There are people who “invest” those ways but don’t do the work themselves, so it’s much more passive. Maybe that’s another category: Running a Flip/Wholesale Business. I’m thinking of guys like Justin Williams who flip ~150 houses/year. He’s not doing almost any of the work himself. You can make any of these methods passive if you have the right people and systems in place.

    • Ali Boone

      Absolutely Adrian. That’s why I mentioned in a short blurb in the article about the situation specifically- outsourcing the work so essentially you are running your wholesaling or flipping business as a business. At that point it can be much more passive. The taxation won’t become passive, but the workload can. I definitely think an article(s) would be great on how to run those businesses. I can’t write any since I don’t do it, but there should be plenty of people on here who can.

  4. Sharon Vornholt

    Great article Ali.

    You have a knack for breaking things down so that the “pluses and minuses” of the subject are easy to understand. Once you are clear on your goals and the lifestyle you want, you can create a plan to build the type of business that is right for you.

    Sharon

    • Ali Boone

      Thanks Sharon! I love breaking things down simple when I can, just because I feel like simple explanations aren’t too common in REI. It’s quite a daunting thing to get into it, a lot for that reason! I know I didn’t find too much on the simple-front when I got going, so I try to help out whenever I can 🙂 Your articles do the same! Great reads for everyone.

    • Ali Boone

      James- we need to be friends, for sure. Few people share the same thoughts, but you and I are two of them! I am so not a fan of working for money. Would much rather have it show up in my sleep and my schedule stay free.

  5. Micki M.

    I’ve been going through a related revelation this week. I work as a broker managing client deals and am transitioning to working as a rehabber. I thought the emotional roller coaster and hustle of finding clients and doing deals would be minimized if I could focus on my own deals, but it’s almost magnified. Probably because the risk is more personal and I’m more emotionally invested. It is really important, as you point out, to keep your eyes focused on your goals. I keep a decision making list above my desk to help me weed out the shiny objects that come my way, and recently added a fourth question to it “Does this create a life of ease?” I like working on projects so it doesn’t mean is this a passive income project, instead it means “will this stress me out financially/emotionally, or will it keep me flowing on the path I’ve chosen”.

    • Ali Boone

      I love that Micki! What a cool thing to do- keep yourself in check as you progress along! It is very important and so helpful, and you will definitely accomplish your goals more efficiently that way. I absolutely love it. And I love how you said “shiny objects”. Hahaha. Squirrel!

  6. Michael Woodward

    Great topic Ali! It struck a cord with me because of its importance. The question you’re asking is one of the most important considerations that everyone should ask themselves before, during, and after they launch their real estate business. I’m constantly trying to implement new systems and improve existing ones to maximize my time value. I agree with Adrian that systematizing and team building makes ALL the difference when you measure your personal “work” required for each business model.

    I’ve always flipped (renovated…..I hate the word “flip” but I’m stuck with it) houses and began my business doing every single part of EVERYTHING. I was exhausted, always away from my family, and VERY unhappy. Fast-forward about 12 years and now I have someone on my team that does (almost) everything. It’s important to me to keep things as simple as possible so I don’t have any employees but rather, I hire independent “contractors” for everything. I’ve narrowed my direct work to finding & evaluating properties and keeping the books straight. I’m very happy with the lifestyle it’s created and am enjoying my family more than ever.

    I love the investment/work chart you made. It’s a great way to make your point quickly. It would be really interesting to see one that was adjustable. In other words, the work/investment percentage would adjust for the number of outsourcing team members you have. That would give people the ability to measure and see their own work balance. My first “flipping” business model would have been colored 100% work but my current model puts me a lot closer to 10% to 20% of the overall “work”. Maybe I’ll try to put a chart like that together someday…..when my work is approaching 0% and I need something else to do….. 🙂 Thanks again for the article!

    • Ali Boone

      Haha… I love that Michael! When you need something else to do. Well when you do that, send it over to me because I think it would be really cool to check out! And good for you for making that all work for you. Someone getting to the point where they create a business (one they work ‘on’ and not ‘in’), that really is the top of the line of accomplishments. It’s not an easy thing to do either! So good for you for not only figuring out how to do it, but in allowing yourself to let go of the control of doing everything yourself because that is oftentimes what really holds people back.

      Definitely share with us your adjusted chart if you do one! 🙂

  7. Lori Dawson

    This is a great article, and very true! My husband and I been “investing” for 14 years and have worked very hard. We’ve made great money and our hours are flexible, but at the end of the day if we’re putting out the effort instead of letting our money do it for us … it’s a job.

    • Ali Boone

      Definitely is Lori. But sounds like in your case, regardless of it being a job, sounds like you’ve done very well at it! And having it as a job isn’t necessarily bad at all. In fact, some people love doing it. And it’s even better when you are successful at it. So definitely props to you on that one! And haha, I like the “investing” quotations.

  8. Jacob Elbe

    Ali,
    Thanks for another great article! I was trying to explain this to another “investor” two days ago on why I use a property manager. I already have a job and have no desire for another one, at least while I’m still working this one !
    Jacob

    • Tiara Freeman

      ALI, I enjoyed reading this article and I found useful information. I have not started investing yet, I am still trying to figure out what I want to do and learn more. I appreciate this article because so many people are trying to get me to do wholesales and I definitely know I do not want that.

    • Ali Boone

      I agree Jacob! Keep spreading the word and eventually we will have a whole lot of lazy folks who refuse to work 🙂 (I say that in a good way!) Being able to be financially successful and lazy at the same time- what a fantastic idea!

      Okay, lazy is a horrible word, but you get what I mean….

  9. Andrew Oladipo on

    Totally agree with you!!! What makes the most sense is finding what works for you as you rightfully eluded to. To me, true passive income + the added tax benefits makes perfect sense and is the direction I am heading. For newbies however, i believe it is natural to first manage your property (so you get a hold and practical experience) and bring in a property manager as soon as your portfolio (size and value) would support. Oversea investing sounds interesting!!!
    Fully disclosure….I am a newbie and this represent my current mindset!!!

  10. Craig Pfeffer

    Great post Ali. I was a Chiropractic Physician for 23 years and therefore worked for money my entire career. I got into real estate investing while working in my practice for many years strictly for passive income and financial freedom. It was the wisest decision I ever made financially. I can now work because I want to work, not because I have to work. And I have the lifestyle and freedom I want now, and able to take vacations when I want for as long as I want. I’m so thankful that I discovered real estate investing early in my career.

  11. JW Shields

    @Ali Boone
    I am newbie and BP has been a great resource for information and inspiration!! I was looking at wholesaling as a means to get to investing because I am tired of trading time for money and looking for a lifestyle that I am in control of. So I have a question for you, you mention their are other businesses that provide the means to generate the capital just like wholesaling does wouldn’t the experience of being in the real estate business provide more than just the capital. I wonder if I am steering my ship in the right direction as I have listened to some podcast that suggest wholesalers should be experienced in real estate and NOT a newbie. Thanks for the enlightening article.
    JW

    • Ali Boone

      Great questions JW. I think it’s probably like anything- anything you do will always be better if you have experience doing it, but how do you get the experience without starting somewhere? Like the famous ‘can’t get a job without experience and can’t get experience without a job’ conundrum.

      You can certainly gain experience and learn wholesaling if you start out at it even as a newbie. Have to learn it somehow, right? Having mentors would be really helpful and be sure you are well-educated on it, ask lots of questions, etc.

      And yes, absolutely, wholesaling is probably the best job out there you can do if you want to really learn a lot about real estate investing and use that knowledge for things later, for sure. But just not everybody wants to do that, so in saying there are other ways to generate the capital….those ways are taking on any job you want. Wholesaling is a job. You can work any job that pays and save that money as capital. Wholesaling can give you more money than a lot of jobs, but not always if you don’t resonate with it and don’t do well with it. So you can do any job you want- work for someone, build your own business…whatever you want to do.

      Hope that helps!

    • Ali Boone

      Hey Jason. Well in terms of jobs specific to REI, wholesaling is great. What I meant (and realize I didn’t clarify), is you don’t even have to work in REI to earn capital to use for investing. You can build a business, you can take on a second job (of whatever nature), you can freelance….and in any industry. I fly airplanes, so flight instructing is an additional stream of income for me that I can use to buy properties. Overtime at your normal job. Basically any job. The point is, wholesaling is a job, just like any other. It just happens to be one that will teach you more about REI, but depending on what you want to do in REI, you may or may not care about that.

      Main point is- do something you enjoy! I would hate wholesaling personally. But a lot of people like it, so for them, it’s great.

  12. This is by far the most enlightening article on real estate investment that I’ve ever read. Congratulations for clarifying the work vs investing aspect of real estate investing activities. The best to you!

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