Passive vs Active Real Estate Investments

Real Estate is one of the oldest forms of investing and has proven to be one of the best ways to grow your wealth. When looking to add real estate to your portfolio, there are a plethora of options, risks and strategies involved and getting started can be an intimidating task. One of the first things to consider is whether your investments are going to be active investments or passive investments. Both investment strategies have their benefits and disadvantages, and the strategy that is right for one real estate investor may be completely wrong for another. By understanding the differences between the two types of investments, investors can make informed decisions and choose the investment strategy that works best for them

Active Real Estate Investments

An active real estate investment is one where an individual buys and manages rental properties, flips houses or develops a property. Essentially, they are “actively” involved in the process of finding, purchasing, and managing the investment. These investments require a significant amount of time, effort, and knowledge, but offer the potential for greater returns. An active investor is fully engaged in the process and the level of commitment that is required with these investments often equates to a full-time job.

Passive Real Estate Investments

A passive real estate investment is one where an individual partners with an investment manager or firm to provide capital. With this investment you usually receive periodic distributions, but have no involvement in the day to day operations of the asset. Passive real estate investments include investing in real estate investment trusts (REITs) and investing in real estate funds where you would receive a percentage of the profits based on their investment. These real estate investments are generally less risky and require less time and expertise while being an excellent way to diversify your portfolio and build wealth over time.

Which one is right for you?

There are advantages to both active and passive real estate investing and it’s up to each individual investor to consider their specific circumstances. You need to consider your goals, your experience and risk tolerance when choosing the right real estate investment for you. Those who are looking for a more hands-on approach and are willing to take on more risk may prefer active real estate investments. Those who want a more hands-off approach and are looking for lower risk may prefer passive real estate investments. 

As with any investment, understand the risks and make sure you’re willing to take them. To learn more about how you can add a passive real estate investment to your portfolio through investing in a mortgage fund, speak to one of our Exempt Market Dealers