Active Or Passive Investing?

Active Or Passive Investing

Investing can be done in two different ways: active or passive. Each approach has its pros and cons.
As an active investor, you take an active role in the investment process. This includes identifying, acquiring, managing, and selling properties or businesses. For example, you might find a distressed single-family property, renovate it, and then rent it out to a tenant. In this case, you would be considered an active investor.

Active investments give you complete control over the entire process. The success of your investment depends on your knowledge and expertise in finding properties, as well as your financial resources and credit to purchase them. It also relies on your network and team to renovate the property and manage tenants.

Even if you hire a property management company to handle the day-to-day operations, it would still be considered an active investment since the property manager reports to you. With active investing, your intellectual capital, skills, financial resources, and network play a crucial role in the success of your investments.

However, active investing has its limitations. It requires more time and effort, which can restrict the number of investments you can make and how quickly you can make them.

Passive investing, the second way to earn cash flow, is an easy path. But let’s face it: there’s no such thing as a truly passive investment. Sure, it might be passive for you, but someone else is working behind the scenes to make it happen.

Investing passively, you tap into someone else’s skills, knowledge, and resources. You provide the capital, and they handle the rest. Some people call it passive investing, but I prefer leveraging investing.

With passive investing, you can find a company that takes care of everything in finding single-family property – from identifying and rehabilitating properties to finding tenants and managing the property. The operator and sponsor receive a fee for finding the deal and a management fee for performing the day-to-day operations. You receive income and tax benefits and enjoy the appreciation of the asset’s value.

Another option for passive investors is buying passive shares of a Limited Liability Corporation (LLC). In this case, an operator manages the investment process while you enjoy the benefits of partial ownership.

This can be done through an investment syndication opportunity.

Investment syndication offers a unique structure where multiple investors come together, pooling their financial resources to invest in large-scale projects, most commonly in real estate. This collaborative approach allows individual investors to engage in more substantial and potentially profitable ventures beyond their reach and capabilities.

Once investors commit capital to a syndication, they enter into a partnership where a lead investor or syndicator manages the investment. This includes overseeing the asset, handling day-to-day management, and communicating with all investors. The returns on these investments are typically distributed per the terms set out in the initial agreement, and there’s usually a predetermined strategy in place for exiting the investment, which often involves selling or liquidating the asset at a reasonable time.

Being a passive investor allows you to profit from the expertise, relationships, and credit of experienced companies, operators, and sponsors.

You don’t need to specialize in a particular investment niche because you can partner with specialized companies and operators. You can also research and interview operators and sponsors to understand their strategies and determine if they align with your investment goals and risk tolerance.

This approach also allows you to diversify your cashflow investments across different markets. By building advantageous relationships and partnerships, you can quickly expand your investment portfolio across various asset classes, niches, and markets.

I started as an active investor and became a passive investor by investing in alternative asset syndications. This is how you invest in the best asset classes, in the best niches, with the best operators and sponsors in the best deals.
Instead of competing with Cashflow Ninjas, the best operators, and sponsors in their asset class, niche, and markets, you can partner with them!

This is a mindset and approach of collaboration instead of competition. A mindset of abundance instead of a mindset of scarcity.

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