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Q: What is the difference between active and passive real estate investment?<\/strong><\/p>\n\n\n\n A: <\/strong>Active investment is a hands-on role where you\u2019ll manage the property directly. Passive investment is a backseat approach; you\u2019ll put money into a syndication or REIT and spend much less time on day-to-day operations.<\/p>\n\n\n\n There are many different approaches and strategies for real estate investing.<\/p>\n\n\n\n Here we\u2019ll explain the key differences between passive and active real estate investing, and which approach best suits you.<\/p>\n\n\n\n Let\u2019s get started.<\/em><\/p>\n\n\n\n At a simplified level, passive investment is a hands-off approach with limited control and time commitments.<\/p>\n\n\n\n On the flip side, active investment is much more hands-on and requires significant time and involvement.<\/p>\n\n\n\n\n\n It\u2019s the classic case of working \u2018on\u2019 a business versus working \u2018in\u2019 a business.<\/p>\n\n\n\n Let\u2019s take a closer look at active vs passive real estate investing, and the key differences.<\/p>\n\n\n\n <\/p>\n\n\n\n What is an active real estate investor?<\/p>\n\n\n\n Active real estate investors are closely involved with all aspects of managing and developing their real estate.<\/p>\n\n\n\n Ever rented a condo or an apartment? Your landlord is a type of real estate investor.<\/p>\n\n\n\n They are usually independent and in control over as much as possible, such as searching for the right properties, negotiations, and financing.<\/p>\n\n\n\n They commonly purchase property for the purpose of a quick return on their investment, or for regular rental income.<\/p>\n\n\n\n Broadly speaking, they do this in two ways:<\/p>\n\n\n\n <\/p>\n<\/div><\/div><\/div><\/div><\/div>\n\n\n\n Fix the property up and sell it for a profit. An investor will often buy a property in an established area, redevelop it, and sell it for a profit. The shorter the time frame, the better.<\/p>\n<\/div><\/div><\/div><\/div><\/div>\n<\/div><\/div><\/div><\/div>\n\n\n\n <\/p>\n\n\n\n <\/p>\n<\/div><\/div><\/div><\/div><\/div>\n\n\n\n Rent the property out for cash-flow. In addition to rental income the property may grow in value over time, which represents a longer-term investment should the investor wish to sell it in the future.<\/p>\n<\/div><\/div><\/div><\/div><\/div>\n<\/div><\/div><\/div><\/div>\n\n\n\n <\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div>\n\n\n\n Some real estate investors combine these two methods. An investor with a portfolio of real estate properties may keep some for rental and others for a quick sale.<\/p>\n\n\n\n Active real estate <\/strong>investing includes anything from small condos to massive apartment buildings with multiple units.<\/p>\n\n\n\n Investors can grow their real estate portfolio and still remain active by outsourcing tasks and utilizing tools to automate workflows.<\/p>\n\n\n\n <\/p>\n\n\n\n Passive real estate investors typically have less day-to-day involvement<\/a>.<\/p>\n\n\n\n There are two main types of passive investment: direct and indirect.<\/p>\n\n\n\n A direct approach involves purchasing part or all of a property and hiring a management company to take care of regular operations. This could include refurbishment, ongoing maintenance, and collecting rent from tenants.<\/p>\n\n\n\n This way, the investor can still be relatively hands-off in the management of the property.<\/p>\n\n\n\n Another form of passive real estate investing is the indirect approach.<\/p>\n\n\n\n This involves putting capital into a real estate syndication, which is a partnership between multiple investors.<\/p>\n\n\n\n A syndication will combine and share capital, and sometimes skills and other resources too, enabling the group to gain purchase power and acquire properties they couldn\u2019t otherwise afford.<\/p>\n\n\n\n The syndication is typically managed by a sponsor, who pools the syndicate\u2019s funds to buy a specific development or portfolio. The sponsor may directly manage some elements of the property management, or outsource it to an agent.<\/p>\n\n\n\n Passive real estate investors may also invest in funds and REITs.<\/p>\n\n\n\n The word \u2018passive\u2019 in real estate is often associated with the concept of \u2018passive income\u2019.<\/p>\n\n\n\n A passive income stream is one that requires very little time or effort, and if it grows, becomes known as progressive passive income.<\/p>\n\n\n\n Virtually all real estate investments are considered \u2018passive income\u2019.<\/p>\n\n\n\n That\u2019s because you generate revenue from the money that you invested rather than the work that you do. You don\u2019t actually work for the income in the same way that you would earn a job salary.<\/p>\n\n\n\n However, there may be some crossover.<\/p>\n\n\n\n If you work specifically in the real estate industry, you may be classed as an \u2018active\u2019 real estate professional by the IRS. This usually applies if you spend at least 750 hours per year<\/a> working in real estate.<\/p>\n\n\n\n You may also be classed as a real estate professional by the IRS if you own at least 5 percent of a real estate business.<\/p>\n\n\n\n In that case, your real estate investments will be treated as active income.<\/p>\n\n\n\n Either way, you will still have to pay taxes on your income regardless of whether it’s active or passive.<\/p>\n\n\n\n When deciding whether to choose an active or a passive investment, there is no right or wrong answer.<\/p>\n\n\n\n It depends on your priorities, your financial resources, and your lifestyle.<\/p>\n\n\n\n Here are 5 key considerations to help you understand whether you are best suited to active or passive real estate investment:<\/p>\n\n\n As an active real estate investor, you are in full control.<\/p>\n\n\n\n You are the main decision-maker and executor of everything from choosing and developing properties, to managing tenants or house sales.<\/p>\n\n\n\n If you want to be in the driving seat of your investment, an active role may be better.<\/p>\n\n\n\n If however you want more of a backseat role, and you are confident putting your investment in the hands of others, you may prefer a passive real estate investment.<\/p>\n\n\n <\/p>\n\n\n\n While you may like the idea of an active investment, do you have the skills and dedication to do it?<\/p>\n\n\n\n Are you an experienced negotiator? Can you manage a property development? Are you prepared to deal directly with tenants or buyers?<\/p>\n\n\n\n When planned and executed well, active real estate investment can be very rewarding.<\/p>\n\n\n\n But take time to consider whether you have the appropriate skill set, personality, and support network to take it on.<\/p>\n\n\n <\/p>\n\n\n\n Active investing can be like a full-time job.<\/p>\n\n\n\n If you have regular financial commitments and rely on another job to meet these needs, you may not have the capacity to take on a real estate investment by yourself.<\/p>\n\n\n\n In that case, passive investment may suit your lifestyle better; the day-to-day responsibilities are carried out by a management team, which requires less time commitment on your part.<\/p>\n\n\n <\/p>\n\n\n\n Generally, a passive investment is considered a lower risk strategy, as passive investors pool their resources with other investors for a safer return.<\/p>\n\n\n\n Plus, you are supposedly plugging into an established system run by an experienced sponsor, who will make informed decisions on your behalf.<\/p>\n\n\n\n Active investing is considered riskier because you are liable for loan guarantees, which increases your exposure to risk.<\/p>\n\n\n\n That said, when you own the property, you own the profits too. But in a downturn, you are responsible for the losses too.<\/p>\n\n\n\n Either way, every investment carries an element of risk. You must carry out your own risk assessment before committing to either passive or active real estate investment.<\/p>\n\n\n <\/p>\n\n\n\n An active investment is often limited by certain factors such as cost and geographical location.<\/p>\n\n\n\n You will need a property within easy reach so you can oversee the development and manage tenants or sales.<\/p>\n\n\n\n The more you outsource to others, the less active your role becomes.<\/p>\n\n\n\n However, if you wish to diversify and push further afield, or invest in different types of property, a passive investment gives you the potential to tap a greater variety of deals and new opportunities across the nation.<\/p>\n\n\n\n Remember:<\/em><\/strong> The decision over whether to pursue a passive or active real estate investment comes down to your individual and personal circumstances.<\/p>\n<\/div><\/div>\n<\/div><\/div><\/div><\/div><\/div><\/div>\n\n\n\n Here\u2019s that list again:<\/p>\n\n\n\n When it comes to income, an active real estate investor stands to receive 100% of the profits by being the sole proprietor.<\/p>\n\n\n\n An active investor commits their time and exposes themself to risk in return for a greater share of the rewards.<\/p>\n\n\n\n On the flip side, passive investors split the profits among many parties.<\/p>\n\n\n\n But that doesn\u2019t automatically mean active investors make more<\/em> than passive investors.<\/p>\n\n\n\n A passive investor commits less time and therefore can pursue other deals or developments to generate income, while continuing to receive returns from their real estate syndication.<\/p>\n\n\n\n A passive investor may also be involved in a larger-scale development, which has the potential to generate greater returns.<\/p>\n\n\n\n In the right market, both options have the potential to generate steady cash-flow and return on investment. It\u2019s your job to ensure your preferred strategy matches your personal circumstances.<\/p>\n\n\n\n <\/p>\n\n\n\n Becoming a successful active real estate investor takes time, research, and effective planning.<\/p>\n\n\n\n It\u2019s essential to know your market in order to identify the right opportunity. It\u2019s tempting to rush into what seems like a great deal.<\/p>\n\n\n\n But you can\u2019t afford to make rash decisions.<\/p>\n\n\n\n Doing so will put your capital at risk.<\/p>\n\n\n\n It\u2019s essential to spend time researching your options fully and, once you\u2019ve settled on an investment, the work doesn\u2019t stop there.<\/p>\n\n\n\n In fact, it\u2019s only just beginning.<\/p>\n\n\n\n As an active investor, you will have many responsibilities. You may already have a full-time job or other commitments, which means spare time is hard to come by.<\/p>\n\n\n\n Good news is, there are various ways to save and recoup precious time while managing your investment.<\/p>\n\n\n\n Here\u2019s the secret:<\/em><\/p>\n\n\n\n Automate<\/a> as much as you can.<\/p>\n\n\n\n The more manual jobs you can shift off your own hands, the more you can free up your time.<\/p>\n\n\n\n And the more time you have, the more you can thoroughly research and plan your next investment opportunity.<\/p>\n\n\n\n Ultimately, this is crucial to make your life easier if you want to succeed.<\/p>\n\n\n\n Armed with this information, you can consider new investment opportunities or apply for fresh funding, ready to take your real estate investment business to the next level.<\/p>\n\n\n\n Remember the part about CRM becoming the central nervous system of your business?<\/p>\n\n\n\n The larger your real estate business, the more you will need a reliable CRM system.<\/p>\n\n\n\n It\u2019s all about making your life easier while smoothing the way for new (paying) tenants or motivated buyers.<\/p>\n\n\n\n A CRM system will help you to:<\/p>\n\n\n\n <\/p>\n\n\n\n Some of the same strategies that help you save time through automation can offer important additional benefits.<\/p>\n\n\n\n Take the idea of hiring a virtual receptionist<\/a>, for example.<\/p>\n\n\n\n Working remotely and utilizing a virtual receptionist<\/a> doesn\u2019t just save you time and money.<\/p>\n\n\n\n Having a friendly, professional voice answering calls on your behalf boosts your professionalism, improves the customer call experience, and builds brand credibility.<\/p>\n\n\n\n For the same reason, many entrepreneurs who utilize live receptionist services often combine it with a virtual office<\/a>.<\/p>\n\n\n\n What is a Virtual Office?<\/a><\/p>\n\n\n\n The big difference is, you don\u2019t pay for full-time office space.<\/p>\n\n\n\n A virtual office is a combination of both physical and virtual services. This normally includes a business address, a place to receive mail, and on-demand access to meeting rooms.<\/p>\n\n\n\n You may want to add live receptionist<\/a> support and a cloud-based business phone number<\/a>, too.<\/p>\n\n\n\n <\/p>\n<\/div><\/div><\/div><\/div><\/div>\n\n\n\n Have your rent checks and other documentation sent to your virtual office address rather than your own home. You can publish your virtual address on your website, email footer, and business cards.<\/span><\/p>\n<\/div><\/div><\/div><\/div><\/div>\n<\/div><\/div><\/div><\/div>\n\n\n\n <\/p>\n\n\n\n A recognized office address looks much more professional and established than a home address, which will give potential partners and investors confidence in your business.<\/span><\/p>\n<\/div><\/div><\/div><\/div><\/div>\n<\/div><\/div><\/div><\/div>\n\n\n\n Rather than risk bombarding your home with junk mail (and unexpected callers), mail can be sent to your virtual address before being forwarded to you. Or you can collect it yourself.<\/span><\/p>\n<\/div><\/div><\/div><\/div><\/div>\n<\/div><\/div><\/div><\/div>\n\n\n\n As you scale your business, a virtual address in a major city can increase visibility and brand awareness.<\/span><\/p>\n<\/div><\/div><\/div><\/div><\/div>\n<\/div><\/div><\/div><\/div>\n\n\n\n
\n\n\n\nWant to be a real estate investor?<\/h2>\n\n\n\n
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\n\n\n\nActive vs Passive Real Estate Investing: What\u2019s the Difference?<\/h2>\n\n\n\n
\n\n\n![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/02-Active-RealEstate.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nActive Real Estate<\/h3>\n\n\n\n
![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/03-A-Fix-Flip.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nFix and Flip<\/strong><\/h6><\/div><\/div><\/div>\n\n\n\n
\n\n\n\n![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/03-B-Refurbish-Rent.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nRefurbish and Rent<\/strong> <\/h6><\/div><\/div><\/div>\n\n\n\n
\n\n\n![\"Passive](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/04-Passive-RealEstate.png\" "\\"Passive")
<\/figure>\n<\/div>\n\n\nPassive Real Estate<\/h3>\n\n\n\n
\n\n\n\nOther interpretations<\/h3>\n\n\n\n
\n\n\n![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/05-Which-is-better.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nActive vs Passive Property Investment: Which One is Better?<\/h2>\n\n\n\n
![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/06-A-Control.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nHow much control do you want?<\/h3>\n\n\n\n
![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/06-B-Skills.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nConsider your skills and personality.<\/h3>\n\n\n\n
![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/06-C-Time.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nHow much time do you have?<\/h3>\n\n\n\n
![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/06-D-Risk.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nHow much risk do you want to take?<\/h3>\n\n\n\n
![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/06-E-diversify.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nDo you want to scale or diversify?<\/h3>\n\n\n\n
\n\n\n![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/07-ActiveVsPassive-Income-1.png\" "\\"Active")
<\/figure>\n<\/div>\n\n\nPassive vs Active Real Estate Income<\/h2>\n\n\n\n
![\"Active](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/08-Reminder-1.png\")
<\/figure>\n
\n\n\n![\"How](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/09-Successful-investor-1.png\" "\\"How")
<\/figure>\n<\/div>\n\n\nHow Do I Become a More Successful Active Real Estate Investor?<\/h2>\n\n\n\n
It\u2019s all about automation.<\/h2>\n<\/div>
![\"How](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/10-Automation-1.png\")
<\/figure><\/div>\n<\/div><\/div><\/div><\/div><\/div><\/div>\n\n\n\nHere are 12 ways to save time through automation:<\/h3>\n\n\n
![\"12](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/11-ways-save-automation-17-1.jpg\" "\\"12")
<\/a><\/figure>\n<\/div>\n\n\n
They will also help you create a more professional image for existing (and future) partnerships.<\/p>\n\n\n\n
\n\n\n\nCRM for Real Estate Investors<\/h3>\n\n\n\n
\n
\n\n\n![\"How](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/12-Virtualoffices.png\" "\\"How")
<\/figure>\n<\/div>\n\n\nImplementing Virtual Business Solutions<\/h2>\n\n\n\n
\n
\n\n\n\nHow Real Estate Investors Utilize Virtual Offices<\/h3>\n\n\n\n
![\"How](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/13-A-Proyecthome-1.png\" "\\"How")
<\/figure>\n<\/div>\n\n\nProtect Your Home Address<\/h6><\/div><\/div><\/div>\n\n\n\n
\n\n\n\n![\"How](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/13-B-Professionalism.png\" "\\"How")
<\/figure>\n<\/div><\/div><\/div><\/div><\/div><\/div>\n\n\n\nProfessionalism<\/h6><\/div><\/div><\/div>\n\n\n\n
\n\n\n\n![\"How](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/13-C-Mailhandling.png\" "\\"How")
<\/figure>\n<\/div><\/div><\/div><\/div><\/div><\/div>\n\n\n\nMail Handling<\/h6><\/div><\/div><\/div>\n\n\n\n
\n\n\n\n![\"How](\"https:\/\/www.alliancevirtualoffices.com\/virtual-office-blog\/wp-content\/uploads\/2021\/02\/13-d-newmarkets.png\" "\\"How")
<\/figure>\n<\/div><\/div><\/div><\/div><\/div><\/div>\n\n\n\nTest New Markets<\/h6><\/div><\/div><\/div>\n\n\n\n
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