Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing active versus passive real estate investing.
When investing into real estate; investors are able to choose to be active or passive. In this episode, Charles discusses the pros and cons of active investing vs active real estate investing.
Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing active versus passive real estate investing.
Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.
Charles:
So real estate investing has many benefits from reliable recurring revenue and tax benefits to capital appreciation real estate as you know is what I feel to be the best path to creating passive income while generating wealth. However many new investors make the mistake of thinking that actively buying ruined property will create passive income. If done correctly yes it will generate recurring revenue but it will require time even if you have a property manager. The two main strategies for investing into real estate are active investing and pass investing.
Charles:
So what is active real estate investing. Well active real estate investing is a Hands-On approach active investors handle or oversee. The entire investment process from researching markets and closing on the property to managing it and selling it. Active investors may have a team or a manager that takes over most day-to-day tasks but the active investor still needs to oversee the properties, what we call Asset Management.
Charles:
What is passive real estate investing? Well passive real estate investing is similar to purchasing a public company stock. After you purchase the share your work is really done. No one is calling you to do anything. Your Role is simply to invest Capital real estate Syndications are a great example of passive real estate investing. Since you’re partnering with an operating manager who completely oversees the assets, they handle every aspect of finding the property to selling them. They will work with a property management company that will manage the day-to-day tasks but the operator will review their work in progress of the business plan. Passive investor has no role in the project after they invest.
Charles:
So what are the pros and cons of active investing. The pros to active investing would be more control the active investor has a say in day-to-day activities of how the properties are operated including what management company to use when to refinance and when to sell. They keep all the profits and cover all the losses. There’s no general partner to split profits with. Some of the cons are more experience is some of the cons are more experience is required active investors must be very knowledgeable on how to actually operate a property. There are no professionals with decades of real estate investing experience holding your hand more capital is required the down payment closing costs renovation budget and reserves will normally be much higher than the typical minimum passive investment into a syndication there’s less diversification since more money is required when actively investing you have more of your Capital sitting at one property in one market. There’s more risk.
Charles:
You’ll most likely need to personally guarantee the mortgage on your investment property. What happens if that property cannot generate enough money to pay its bills you may lose much more than the rental property possibly your personal home and other assets more time is required as an act investor you need to manage the daily operations or hire someone and then manage them there is always some level of management required so what are the pros and cons of passive investing well the pros are it requires minimal knowledge of managing real estate it’s much easier to diversify since every investment requires smaller amounts of capital access to institutional grade properties that are out of the reach of small investors they’re substantial tax benefits and my favorite it is passive receive regular cash distributions without having to do anything.
Charles:
Now some of the cons to pass investing there’s much less control over the investment no saying day-to-day Property Management operations window refinance or when to sell there’s a lack of liquidity as an investor you don’t have the ability to necessarily make the decision to sell sell your share of the property or sell a property as a whole there’s more fees when compared to active investing syndication fees Asset Management fees and they carry to name a few but how do you determine whether act investing or pass investing is right for you. Well number one is how much time do you have and what will be pulling time away from to research purchase and manage a property in most situations investors will make more money focusing on their main income source versus managing real estate.
Charles:
How experienced are you have you purchased rental properties before are you familiar with the market what level of risk are you willing to accept are you able to maintain a reserve fund if there is an issue are you able to access other funds if a major capital expense is required like a new roof are you willing to personally guarantee a mortgage on an investment property. Level of control are you comfortable with a professional manager running the entire investment or do you want to have a say in the day-to-day operations. Are you comfortable with less diversification? Active investing will contain more of your investment Capital into less units and possibly just into one market. So I hope you enjoyed. Please remember rate review subscribe submit comments and potential show topics at globalinvestorspodcast.com look forward to two more episodes next week see you then.
Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.
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