Active vs passive investing... which one is better for you? Maybe you want to be a "Hands-on" investor or a "hands-off" investor. Maybe you don't even know the difference. Either way you need to understand what these are so you can actually make that decision. In this week's Mindset Minutes episode we provide real life examples of how the two strategies work and how they can fit your needs. If you have any doubt over which route to take, then don't miss this episode, as it will help answer your questions and give you a clear investing strategy.
Active vs passive investing... which one is better for you?
Maybe you want to be a "Hands-on" investor or a "hands-off" investor. Maybe you don't even know the difference. Either way you need to understand what these are so you can actually make that decision.
In this week's Mindset Minutes episode we provide real life examples of how the two strategies work and how they can fit your needs. If you have any doubt over which route to take, then don't miss this episode, as it will help answer your questions and give you a clear investing strategy.
KEY TAKEAWAYS
1. Hands-on investors are called "active investors" and they find the deals, manage the properties and are fully responsible for all liability and decisions.
2. Hands-off investors are called "passive investors" and they find syndications, lending and putting capital into experienced operator deals to receive income without managing anything to do with the actual property.
3. Ask yourself three questions:
1. Are you too busy in your fulltime job but still want to invest in real estate?
2. Do you want to invest but worried you don't have the experience or capital?
3. Are comfortable with others making business decisions for your investments?
Watch the episode to find out what your answers mean for you.
BOOKS
The Passive Investing Playbook - https://theinvestormindset.com/passive
LINKS
Learn more about investing with Steven at https://theinvestormindset.com/invest
Title: E135: Active Investing vs Passive Investing - Which is Better? - Steven Pesavento
Host: Steven Pesavento
Duration: 12:39
Narrator (00:01):
Investors, we've got a great episode for you today, answering the question active versus passive investing, which one's better and which one's better for you. We're going to cover some details here that's going to help you make that decision in this episode. You're not going to want to miss it.
This is the investor mindset podcast and I'm Steven Pesavento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better and how we can do better. And each episode, we explore lessons on motivation and mindset for the most successful real estate investors and entrepreneurs in the nation.
Steven (00:44):
All right, guys, welcome back to this week’s mindset minute’s episode on the investor mindset podcast, and I am Steven Pesavento, your host, and each week I share mindset tips and investing strategies that can help you take your investing career to the next level. This week I'll be focusing on, active versus passive investing, which one's better and which one's better for you. Join each week as we share more tips and strategies that can help you reach true financial freedom through real estate, by hitting that subscribe button and making sure you never miss another episode. And remember you can grab the full passive investing playbook, The Ultimate Guide to Passive Real Estate Investing, to help you make the right decisions, lay the right foundation for yourself, so that you can really reach financial freedom through real estate. And you can do so by grabbing it right down below in the show notes, or going over to theinvestormindset.com/passive to get access to the full playbook, which is going to lay a phenomenal foundation, over 10,000 words as we really dive deep into helping you guys really get clear so, you can take your invest investing career to the next level.
So let's get into it, active versus passive investing, right? Which one's the best option, which one's the best option for you. At the core, I want to be clear that each of these have their benefit and each of them have a place in people's lives depending on what the time is. So if at the end of this, you decide, hey, I really want to go the passive investing route, I really want to figure out how I can invest my capital in experienced operators deals, well, great! We're going to be able to point you in the right direction, happy to assist you there. And if you're looking to go down the path of, I want to be an active investor, I want to be responsible and in charge and liable for all of the decisions and all the things that have to happen in that investing business, I want to go down that path myself, then, great! That can be a great option. It's one of the options that I've gone down, actually do both and I can point you in the right direction there as well as make sure that there's some resources for you too. So let's get into it.
Let's start off with some definitions to help get some clarity so that we can then build upon that and help answer that question of which is best for me? So hands on investors are called active investors. These are the folks who are going out and putting together the deals themselves they're going and buying the buildings, managing them and running them. They're going and flipping those properties, they're going and buying those single family homes and they're the ones who are responsible for doing direct ownership, as well as making all of the decisions and taking all the liability. The hands off investors are called passive investors. You know, if this speaks to you, you're the type of person who should really be looking at syndication or lending, or kind of going down this path of putting capital into experienced operators deals and receiving some kind of return, some kind of upside on those investments while you focus on whatever you're the best at, or, you know, maybe just sipping Mai Tai's on the beach, if that happens to be your thing.
So as an active investor, an active investor is taking an active role, right? It seems simple, but these folks are the ones who are putting together the deal. So if I break this down into the simplest terms, you know, if you've got $50,000 to invest and you went out and bought a $200,000 property and you use $50,000 of that towards a down payment, and you ended up getting $150,000 loan from the bank then, you're going to be the one who's managing this property or managing the manager themselves, right? And even when you put a manager in place, you've got to manage them, right? You've got to make sure their incentives are aligned, that you're overseeing what's happening on that property and then if something breaks, like the furnace, you're responsible for that. You're responsible for any of the turnover costs, anything that goes into the property, you're going to be the one making those decisions. You also hold the liability, but in return, you hold the control. You get to make those decisions on a regular basis about who to put in the property, what spending should happen and when to sell the property. So if you're the type of person who is looking to have that control, and that is absolutely critical and important to you, and you've got the experience or you want to go build and learn the experience, then active investing is a really phenomenal route, right? It's one of the routes that I've gone. Like I mentioned, and I will continue to mention, as I invest both passively and actively, I think it's important to kind of diversify my portfolio down that direction because the ultimate end goal is, you know, to have most of my money coming in passively.
But the passive investing on the other side, you know, it's for those who are invested in real estate, but they don't want to deal with the day to day management responsibilities for making those decisions and they're are okay abdicating control to somebody who is an expert, to somebody who knows how to manage these properties really well and that's their full time business, right? So here in this example, if you have $50,000, you'd put your $50,000 into a group investment, into a syndication, into joint venture partnership, and you, with multiple other investors are maybe pooling 50,000 or 150,000 or 500,000, you'd, co-invest alongside those other investors and together, you'd go out and buy a property. You might buy a single family, you might buy a multifamily, you might buy a storage building, you might buy some industrial space or commercial space or something in between. And as a result, you'd put your money into that opportunity, you do all your due diligence upfront, and then you would sit back and the manager, the operator, would then manage that property; they would make all the decisions, they would take all the liability. They would make the decision when to sell, who to put in the property, you know, dealing with the challenges when things break and making those decisions, right? And so for the life of the investment, you're going to get paid out either monthly or quarterly, maybe yearly depends on the type of deal that you're working on, from distribution checks that either come from cash flow or maybe from appreciation or refinance or a sale, and you're going to earn that money. But what you're giving in exchange for that is, you're giving up control. Because, you're acknowledging that this other person or entity is an absolute expert in that space that they're investing in. And I believe that in order for them and me to receive the kind of return that I'm looking for, I'm going to believe that they are going to be the ones who are gonna manage that property the best. And I don't want other passive investors in the deal, making decisions, I want to invest in the operator so, you're going to give that up as a passive investor.
So the question is which option is best for you? And as you're hearing these things you might think to yourself, I really want to be an active investor, but I'm really busy in my job and I don't have the experience. Well, great, you can definitely do that. I know a lot of folks who start out passively, they invest with some operators, they learn a lot over time by seeing what happens within those deals and they build up their education experience and they go on to go active. And on the other hand, maybe you're thinking to yourself, I would never want to go passive, I would never want to give up control, I would never want somebody else to be making decisions on these assets and I believe that I'm the best person to make those decisions and that I'm going to build that expertise. Well, great, there's a lot of resources for you to learn how to do that. And, you know, just reach out to me directly, head over on any platform at steven.pesavento, find me, shoot me a message personally and I will send you some phenomenal resources that can help you kind of level up your game, especially if you're focused on multifamily. But I can point you in the right direction because I've got friends in all of the spaces and a lot of free resources that can help get you there. So, you know, if we're going to answer this question, there's three questions that I like to pose that can help get the wheels turning on which direction is best for you as well. As you heard everything we just talked about, it's probably pretty clear, but starting with question one, are you busy with your full time job or other commitment, but you'd still like to receive the benefits investing in real estate? Question two, are you interested in investing in real estate, but lack the capital or experience to confidently invest on your own? Or the third question, are you comfortable with others making business decisions for your investments? So there's three key questions there, right? Are you really busy with work? Do you have the expertise and time to invest on your own? And are you okay with other folks, other people, making investment decisions on the operation of that asset every single day? if you answered yes to all of these, then passive investing could be a great route. If you answered no to any of these, then you might want to consider active investing but most importantly, if you answered no to number three, you really should go the path of active. Unless you can get yourself comfortable with allowing an expert, somebody who is an operating partner to make those decisions, then you've really got to go the active route because the key to passive investing is allowing other experts to make those decisions after you've invested that capital, right? So there's a lot of different directions that you can go and there's no right or wrong answer and like I said, I invest both passively and actively, and I think it's done really well for me. You know, I've been able to increase my net worth at a faster rate than most people, I’ve probably made more money than I ever would have by going the active route and I've also made more money on the passive route than I would have, you know, if I won’t have dove in deep into this information and learned a lot. And as a reminder, you can continue your learning grabbing The Ultimate Guide to Passive Real Estate Investing at the investormindset.com/passive and learning by diving deep into answering some of these questions for yourself, by going deeper into all the subjects that I'm covering here today and many more in this full, free ultimate guide on passive real estate investing. Remember that's down in the link below and in the show notes.
As a reminder, guys, I leave you as I always leave you with a reminder to live a life worth inspiring others, and you can do so today by taking action, by reviewing this, by answering the questions yourself and making a decision, and a decision means you're going to cut yourself off from all other options, you're going to go down that path.That doesn't mean you can never go back down the other path, it just means that, you're going to decide to have some focus. So apply some focus in your life, decide which path you're going to go down and start educating yourself so that you can be comfortable to make those decisions. Remember, I'm here as a resource, you can always reach out.
And if you've been listening to this for any amount of time, I really have to encourage you to help us reach more people. Remember this is a free podcast, we do nearly no advertising and the best way that you can pay us back for all the time that we put into it is simply by just dropping us a review so that other people can reach it so that we can continue to make an impact on other people's lives. So thank you so much, I appreciate all of you guys, it's been phenomenal to serve you and I look forward to many more opportunities to do so. So see on the next one.
Narrator (12:11):
Thank you for listening to the investor mindset podcast. If you like, what you heard, make sure to rate, review, subscribe, and share with a friend. Head over to theinvestormindset.com to join the insider club, where we share tools and strategies from the top investors and entrepreneurs and how to take it to the next level.