Passive investing – is it right for you?

Cash-rich, time-poor. That’s a complaint I hear from a lot of people on Discovery calls and in my Skool community.

‘Cash-rich’ might seem like bit of a relative term in today’s world, but ‘time-poor’ definitely isn’t. So many people I speak to want the ability to make decent money, but without spending their lives chained to a desk, which is why they want to get into investment and real estate.

That said, it’s not simply a case of ‘buy a property, sell it, make some money’! If you’re just taking your first steps in the property industry (or in investment in general), then before you get started you need to think about your investment style - what kind investor you might be today, and what kind of investor you see yourself being in the future. Do you want to be a passive investor, or active?

There are pros and cons to each style, which is what we’re going to look at over the next couple of weeks. This week – passive investing: is it right for you?

What is passive investing?

Passive investing refers to an investment strategy where an someone seeks to generate returns by taking a relatively hands-off approach to investment and/or property management.

It about ownership rather than developing, so maybe you’ve acquired a ‘spare’ property (for example, through inheritance, or because you’ve bought a second property but not sold the first), or perhaps you’ve got some additional capital that you want to make work a little harder for you (as opposed to just sitting in the bank), but you’re a little wary of trying to navigate the stock market.

Passive investing means you rent out a property, as opposed to flipping (perhaps you even employ a management company to do this), or you entrust your money to an asset management firm to handle your investments.

Could passive investing work for me?

As with anything, there are upsides and downsides, and that definitely applies to passive investing. It could be the right approach for you if you’re starting out and still doing a 9-5 day job - one of the most appealing things about it is that it requires minimal day-to-day involvement, meaning it’s ideal for busy professionals looking to move their earning potential sideways. You’ll be able to scale at a sensible rate, without it necessarily eating into more of your time.

If you’re more of an analyst than a gambler, it’s a steady income, providing you with a consistent cash flow without needing to take too many risks with your money.

Don’t put all your eggs in one basket

As I’ve said before, I think it’s really important to spread your investments across different properties or markets where you can, rather than hedging everything on a sole asset, and passive investing can be a really good way to start doing this. Because you don’t need to personally manage each property (or become an expert in each market), you can rely on other people to handle the details while you benefit from a more diverse portfolio – remember, it’s not always WHAT you know, rather it’s WHO you know!

Mo’ money, less stress

This in turn means that overall, things are going to be less stressful for you – if you’re not so hands-on, there will automatically fewer problems that you’re going to be responsible for solving!

Which all sounds pretty good, right? If you’ve got some money saved up and want to buy something, but don’t want, or have the capacity, to do much more than that, then passive investing is most likely the way to go. Likewise, if you’ve always dreamed of playing the stock market but you don’t know your FTSE from your NASDAQ, having someone to handle your investments is the way forward.

What about the downside?

Now let’s take a look at the cons of passive investing, because there definitely are some.

To my mind, it’s not the most dynamic thing in the world. If you’ve got a picture in your head of being some kind of wheeling, dealing investment and real estate impresario… then passive investing definitely isn’t for you.

You have less control, because there’ll be a limit on your ability to make decisions about property management or investments, and if you’re working with asset managers or management companies, you’ll have fees to pay that are going to eat into your returns.

Speaking of which, your returns are most likely going to be lower. Looking specifically at property here, renting out a property means you’re unlikely to be adding much value to it, and so any growth of capital is going to come from the market, rather than anything you’ve done to it.

Learning as you go

Another downside of passive investing is your ability to learn: if you’re intending to make an eventual move into more active investing, then reduced hands-on experience might limit your understanding of how it all works. Add to that the fact that your success relies heavily on the competence of property managers or fund administrators, and you might not like that lack of control or the gaps in your knowledge.

Weighing it all up

With all that said, passive investment isn’t a bad style, by any stretch of the imagination, but it won’t be for you if you want to be more hands-on. If that’s the case, active investment might be the path for you.

As an active investor, you’ll be looking for property that you can add value to and make a profit from, which you can then roll into your next deal. It’s dynamic and it’s exciting, but you do need to give serious consideration as to whether you have the capacity to be able to do it or not, because it’s time-consuming stuff.

If you’re interested in making a step towards a full-time career in property, why not take a look at the programs I have on offer to find one that’s right for you, and join me next week when I’ll be taking a deep dive on Active investment and how it could work for you!

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