Last Updated on October 28, 2021 by admin
Regardless of the employment type, most individuals narrow their focus to real estate when they are looking for a quick income. The income from real estate means steady cash from rent which can serve a host of tax benefits.
Indeed, the real estate market is easy money once you know where and how to invest. The profit that you receive is often double or triple of your investment. However, you can make a real estate investment as an active real estate investor or a passive real estate investor. Before individuals choose one of these methods, it is essential to understand the pros and cons of both methods.
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Active Real Estate Investing
An individual will buy property directly in an active real estate investing and will have complete control over a property and its hands-on and hand-off work. It depends upon the property owner how much they want to work on the property they have just bought.
The investors can do everything by themselves or cut out the time-consuming tasks of maintaining, improving, and selling by giving the charge to a hired contractor or a management company. However, directly buying a property can risk the owner through loan guarantees.
Passive Real Estate Investing
Passive investment means that you outsource a manager for investment properties to a private equity manager and pay them a decided portion of your profit for their services. These property managers have an entire portfolio of properties.
These managers have a specific business plan, run day-to-day operations, which they report back to the investors. Working with these managers allows the investors to tap into the non-recourse debt market, lowering the risk for all investment partners.
Further in this article, we will discuss the benefits and drawbacks of being an active and a passive investor.
Finding the right property to buy
Finding the right property and the right price requires a real estate agent, proper knowledge, and financing. A successful investment starts with having a good quality deal, and deals do not fall into your lap.
The investor must constantly look at properties, consider their features, and determine if the deal is good or not. It would be best if you had a professional real estate agent because the market is dense, and you cannot have the entire market knowledge. An active investor should follow an ambitious approach and be disciplined with his schedule as he is doing everything independently.
In the case of passive investors, they outsource agents who hunt and find a suitable property for them. These agents come across hundreds of deals in a year. These investors approve each holding before making a financial investment. Passive investors hold shares in many properties, and they do not have to answer the phones in the middle of the night as their agent would do this part for them. For more insightful information, you can take a look at McGraw Commercial.
Maintaining the property
Once a property is bought, it requires improvement and an overlook for maintaining the property, collecting rents, and handling any issues.
Active investors become the landlord to their tenants, which is a time-consuming task. This task can be more complex if renovations and maintenance are part of the contract, along with rent collection. You might like performing small fixes around the house, but would you take that responsibility 24/7? And when are these issues of someone else?
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In contrast, passive investors can rely on their managers to oversee a property. They can maintain a property efficiently with the intent of increasing the home value and resale value. These managers have a team of professionals that helps them with economical solutions for property maintenance.
Making a decision
Everything done in the real estate market has a lot to do with patience and tolerance. The most common mistake that investors make is that they jump to conclusions too quickly. It would be best for investors to list out the time they can willingly invest in a property and the extent of risk they are willing to take.
You will notice that active investors are trying to maximize the profit out of the property by saving on the fee. Active investors need to think twice about their decision. These investors are underperforming in the real estate market and often find themselves working full-time in a profession they thought was part-time.
The ideal way is to double or triple the amount of time they are actually planning to invest because quality results will take full commitment. They must also understand that they cannot expand their investment horizons and not make expensive mistakes.
On the other hand, passive investors limit their investment and only follow the efficient approaches of investing. Most passive investors follow the buy-and-hold strategy, which means that they resist the temptation to react to an offer immediately and only react when they are ready to afford the risks included.