Should I Actively Invest or Passively Invest in Multifamily Real Estate?
Choosing between active and passive investing in multifamily real estate can be a pivotal decision in your investment journey. Here’s a guide to help you decide which path aligns best with your goals, resources, and lifestyle.
What is Active Investing and Passive Investing in Multifamily Real Estate?
Active Investing: This involves directly buying, managing, and operating real estate properties. You have full control over the decisions, but it requires substantial time, effort, and expertise. Active investors handle everything from tenant issues to property maintenance and are directly responsible for the success or failure of the investment.
Passive Investing: In contrast, passive investing means providing capital to real estate deals managed by others, typically through syndications. You benefit from the expertise of experienced operators and enjoy the financial rewards without the day-to-day hassles of asset or property management.
Questions to Ask if Active Investing is the Right Choice
- Do I have the money to buy my own property?
- Am I willing to take the time and spend the money to educate myself on how to analyze, acquire, and operate real estate?
- Am I willing to sacrifice time and energy away from my work and family to learn to acquire and operate real estate deals?
- Am I willing to bear the liability of signing on loans worth hundreds of thousands to millions of dollars?
- Am I willing to take emergency calls after hours for issues with properties and tenants?
- Am I willing to wait 6-12+ months to find a good deal worth investing in?
- Am I willing to take the time to build a team to buy and manage these properties?
If you answer “no” to two or more of these questions, becoming an active investor might not be the right move for you at this point in time.
Questions to Ask Yourself if Passive Investing is the Right Choice for You
- Am I willing to entrust someone else with my capital to potentially provide double-digit annual returns on my investment?
- Do I enjoy my current job or business, and does it provide extra income I can invest?
- Do I want passive income and tax breaks with my investment?
- Am I willing to have invested capital tied up for 3, 5, or 7 years?
- Do I want to diversify into real estate?
If the answer is “yes” to all of these questions, then passive investing may be a great choice to propel you toward your financial goals.
Consider This…
Starting as a passive investor can be a great way to ease into real estate. It allows you to learn the ropes without the immediate pressures of active management. Over time, as you gain more experience and confidence, you might consider transitioning into active investing or maintaining a balanced approach between both.
Conclusion
Whether you choose to be an active or passive investor in multifamily real estate depends on your personal situation, goals, and resources. Active investing demands more time, effort, and risk but can be highly rewarding. Passive investing offers the benefits of real estate without the headaches of management. Consider your answers to the questions above and decide which path aligns best with your life and financial goals.