Active vs. Passive Investing

After speaking with countless people entering or already in the real estate sector, I think that many people are making the mistake of being misaligned with their vision and not taking advantage of their biggest asset – their time and unique ability.

It is important to note that being active vs. passive in real estate are two entirely different things. You may think you are escaping from your W-2 to spend more time with your kids by building a rental portfolio but it is entirely possible that you may spend more time managing your rentals than you did at your W-2 job. Additionally, you are even more likely to spend the time since it is now your business and investment so you are fully vested.

Many come into the real estate world for a variety of reasons. Perhaps they were inspired by Robert Kiyosaki’s Rich Dad Poor Dad, had family in the real estate industry, or knew friends who had made it big. Regardless of how you got here, your instincts were right, and investing in real estate can be both lucrative as well as fulfilling.

At this point is when many make a big mistake, and that is: they go all-in on real estate, believing it will get them to financial freedom and life will have worked out. They learn as much as they can through great resources and education such as Bigger Pockets and then take action on a niche such as SFR, BRRR, Airbnb, or others. The missing step is that they failed to do two key things first.

First, they failed to do some critical thinking on creating a vision and goal planning.  While you might achieve your financial target managing a portfolio of 50 single-family properties you might be surprised that freedom isn’t what you thought it would be. I think it’s important to think through what financial freedom truly means to you and your family. In fact, I would venture to say it’s much more than just freedom of money but also freedom of purpose – doing what you want to do, freedom of time- doing it when you want to, and freedom of relationship – doing it with who you want to. Doesn’t this sound more complete? This is why so many lottery millionaires lose all of their money within a few years after receiving it because they weren’t clear on their vision on what freedoms they aspired to.

The second mistake people make is not having a clear understanding of themselves and have not performed an extensive self-assessment. If you are averse to data analysis and fact-finding you may struggle in analyzing a real estate deal.  High performers in sports or anywhere in the professional world are very in tune with their strengths and how they can add value.

There are some great tools out there such as the Kolbe profile which measures your conative abilities or natural instincts.

Another is the Clifton Strengths Profile, which classifies four talent themes on thinking, feeling, and behaving that come naturally to an individual.

Another great assessment tool is the PRINT test, which identifies categories of unconscious motivators. This self-assessment can truly be illuminating to you and then you can begin aligning your instincts and strengths to your goals. I’ve always found that the return on investment in myself has always produced the highest yield.

So now, with this newfound clarity on your vision and assessment of your instincts and strengths, you can determine where real estate investing fits for you. For me, I realized that I could get a better return on my unique ability so I have spent the past two decades building businesses and generating income. With my passion for real estate, I then passively invested in multifamily syndications that require minimal time from myself, strong returns, and excellent tax efficiency.

Further, I am able to invest in different markets, with different operators, and various asset types as I build out my portfolio. I am also getting significant leverage by working with top-notch operators that have strong relationships in markets to find good deals, a proven property, and asset management team so I don’t have to get involved with tenants and toilets, access to recession-resistant markets where job and population growth are high, and asset types that match my risk tolerance.

What have been your real estate investing experiences Actively or Passively?