Do you want to be a passive or active investor?

Another question to ask is do you want an investor strategy or job strategy?

Before we start it’s important to define what an investor is. An investor is someone who allocates capital with the expectation of future capital gain.

What is passive investing? 

Passive investing is a type of investment strategy where you do not participate in the day to day running or you have little to no involvement in the management of the asset you have invested in. In a nutshell you invest your capital and then effectively take a step back with a return delivered over a period of time without any need or desire to be involved.

An example might be someone simply placing their money into an individual savings account (ISA) where you receive a basic interest rate return. For instance, if you invested your full allowance of ￡20,000 with an interest rate return of 1.3% you would have gained ￡260 annual interest for no involvement.  

A passive investor may be a busy professional or business owner that is cash rich and time poor. It may also be someone who has amassed a significant amount of money (inheritance, pension etc) and has it sat in a savings account. What you all have in common is that you want your money to work harder but are limited by time, knowledge and / or experience or have no inclination or desire to learn the details or create another job. They value their time which they are not willing to trade and more importantly want a stress free, hands off approach.

Can you invest in property passively?

Property is a great asset class to invest in and many are led to believe that property is a passive investment. As someone who has built a portfolio I can agree that it is passive especially when the properties are let out and the rental income is coming in month in month out but buying a property and renting it out regardless of whether you use a management company does require a considerable amount of time, responsibility and ongoing financial involvement.  

One of the best ways to invest in property passively is by becoming a funding partner which will allow you to earn a significant return on your money compared to savings accounts usually for a minimum period of time. When you become a passive funding partner you invest your money usually on a specific project or mission and as soon as the money is invested you have nothing else to do and can completely sit back. The project continues in the background and you get the return at the end of the agreement. 

Benefits of being a passive property investor?

• Other people do all the heavy lifting which allows you to tap into their time and knowledge 
• Better return than the banks
• Typically these can be fixed returns
• Hands off and hassle free
• Enjoy a true passive income stream

Negatives of being a passive property investor?

• Returns are not the same as an active investor would get
• Your funds may be tied up until the end of the loan agreement or exit strategy has been achieved

What is active investing?

An active investing on the other hand is the direct opposite to being passive whereby someone takes a more hands on involvement in the investment process and constantly monitors the market and trades or buys and sells assets when they see an opportunity to make money.

How do you invest in property actively?

For many active investors it’s very much a full time job and income stream. You are constantly out in the market running marketing campaigns to create off market opportunities, building relationships and growing your network with relevant individuals, viewing multiple houses a month, analysing these opportunities, offering on multiple properties, negotiating, following up and chasing down offers. Once your offer has been accepted you are then managing the purchase, refurb and after refurb process to ensure you are getting the desired return and minimise risk.

For some investors, these activities aren’t something they're able to commit to - or want to commit to. For many others, however, it's something they thrive on and simply find it part of the investment journey.

Benefits of being an active property investor?

• Greater level of return
• Opportunity to create and grow something
• Build a business

Negatives of being an active property investor?

• It can extremely time heavy
• Can be quite hands on 
• Can’t switch off
• Things can and will go wrong which you need to be able to resolve
• Need to build up and learn new skills and be kept abreast of what’s going on in the market 
• Riskier
• No guarantee on the return

Choosing the right property investment route for you

There's no right or wrong answer when deciding on whether to invest into property actively or passively. They both have their merits and both have risks. Some of these risks are greater than others, but this is largely found at a level that's more specific than at the active or passive level.

Similarly, whilst most investors will have a preference towards passive or active investments, it's very common to invest into both. This itself shows the huge potential when it comes to diversification with property - you don't need to look at other asset classes for diversification if you're a property investor and can have a particularly diverse portfolio by exploring the various property investment opportunities that are available.

So do you want to be an active or passive investor?

If you want to be a passive property investor we can help...

We are on a mission to help more people make their savings work for them. We are therefore looking to work with a select number of passive investors that want their savings (or what we call lazy money) to work harder for them.

If you know of anyone that is interested in investing in property passively and wants a great return on their money without having to do any heavy lifting then please get in touch and drop us an email to [email protected] and lets have a chat to see if we can help.