Let’s talk about being an active investor from an active investor. I have often been approached by investors, regarding the opportunity of becoming active investors.  The reality is that although being an active investor can be more lucrative, it also comes with a lot of drawbacks.

This past month, I found myself in eviction court with my attorney. For the record, I have a manager for this property, but as a process, I handle the eviction process, since its can be expensive and needs a high degree of attention to detail Now evicting someone is always the last resort, and quite frankly it’s not a good feeling. But as an active investor in comes with the territory. Fortunately, we were successful, and gained our unit back. 

But this success doesn’t come easy. It actually comes from years of learning the business. Yes, you will make mistakes, but hopefully none that will cost you…a lot.

o Educations: Being an active investor means always learning. We learn about new laws, market cycles, design, maintenance costs, value-add projects, rental rates, etc. An active investor…a good one, is always learning. You have to, if you want to be a good investor. As the saying goes. A good manager can turn a good deal, great and a bad one can make a good deal, bad. Quite frankly the experience needed, takes time to learn, not to mention becoming efficient.

o Legal: We are dealing with people, personalities and their lives. You have to know what the legalities are in the areas you invest. This means hiring an attorney, reading on current and upcoming laws/ordinances, ensuring your property manager is knowledgeable. But it also means knowing when tenants are pushing the envelope because this will dictate your response. The legal side can be expensive, but even more so, if you make big mistakes.

o Termites, Tenants, and Toilets: Being an active investor means you will be pulled into the property’s “drama” from all angles. I sometime have felt like a therapist listening to tenants’ problems, some related to rent and other to personal family problem. That weekend call? Yes, you can send someone, but it’s on your mind.

I hate saying this list can be longer, but it can, and this is a short blog.

As a passive investor, you don’t deal with any of these issues. You have a competent team that knows the laws, and a system that supports all of the needs of the tenants and properties. The passive investor can benefit from scale and the broad network of its lead partner. It’s true, being a passive investor means that you don’t earn as much, as an active investor, but trust me, its not all peaches and cream. There is something to say about making a great return, as a passive investor and having none of the headaches. The most important aspect for a passive investor, is having the ability to keep doing what you love. If you have a career, keep it! Do what you love but diversify into additional income streams. This will create a better quality of life for you and I sometimes think this aspect becomes under-rated, when we talk about being a passive investor.