Passive Investor Tips is a weekly series hosted by full-time passive investor and Best Ever Show host, Travis Watts. In each bite-sized episode, Travis breaks down passive investor topics, simplifying the philosophy and mindset while providing tactical, valuable information on how to be a passive investor.

In this episode, Travis discusses both active and passive investing strategies and how to decide which is best for you. Deciding factors include the skill sets required and motivation behind each strategy, plus some scenarios where using both strategies might be the best choice.

Active Investing

Active investing means having an active involvement in the actual business itself for the real estate that you’re acquiring.

Required Skill Sets

The ability to understand and underwrite properties, and to understand the analysis that comes with that.
The ability to find deals off-market that give you your competitive edge.
The ability to assemble teams and manage people.
A conservative and realistic approach to project future and current expenses and potential returns for the deals that you’re doing.
The ability to follow through on a business plan.
Having the time to be able to dedicate to all of this.

Motivating Factors

You might be doing an active deal because you want to learn the foundation of real estate, or you may simply enjoy work that involves repairs and renovations. Active investors also earn higher profits on return than passive investors.

Passive Investing

As a passive investor, you do not have material participation in the business or deal itself. You are effectively investing in someone else’s deal or someone else’s business as a hands-off investor.

Required Skill Sets

A basic understanding of property analysis and how real estate works fundamentally.
The ability to network and find deals.
The ability to manage your finances and personal budget.
The ability to identify conservative underwriting when you’re vetting deals and doing your due diligence.
The ability to relinquish control and just simply let others run the deal, make the big decisions, and do what they do best.

Motivating Factors

Passive investing might be for you if you want to free up your time. You may have another career or other professional interest that you focus on full-time, and investing passively would allow you to continue focusing on those interests. It’s a way to build up supplemental income without sacrificing more of your time.

Why Not Both?

Many investors choose some combination of active and passive investing. For example, active investors often invest passively as well in order to diversify their portfolios.

Additionally, commercial real estate beginners without much capital to invest often choose to start out as active investors. This strategy allows them to build up their “nest egg” in order to accumulate enough capital to create significant returns once they decide to invest passively.

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