In this article I would like to share with you the very first decision you need to make in order to have a successful real estate investment. This may come as a surprise to some of you.
Whether you are investing in your first property or your next one, this decision will be critical to your success.
Most investors start out with good intentions, realizing that they want to get all of the benefits of investment real estate – especially in apartment properties and commercial real estate. These investors know that they can achieve 4 different types of income from their properties, including:
1) Cash Flow
2) Principal Reduction
3) Property Appreciation
4) Tax Benefits
They are ready to get started, but they fail to make this first distinction, which is this:
You must first decide whether you want to be an ACTIVE INVESTOR or a PASSIVE INVESTOR in apartments or commercial property.
Here is what I mean:
An Active Investor is one that is involved with the day-to-day management of their properties. They show vacant units, review the tenant applications, sign the lease documents, coordinate repairs with contractors, and are there making sure everything is properly maintained. Basically, they are the “landlord” in the classical sense of the word, and take care of everything on their properties.
A Passive Investor is one that is simply NOT involved with all of the day-to-day activities noted above. They are not what you would call a “hands on” investor, and may in fact invest in an area of the country that they do not even live. They are not bound by the geographic range of their car. They can invest practically anywhere to maximize profits, including their home area if they so choose.
Their involvement in the property management is essentially looking over the reports from their manager, and making sure everything looks good from a “CEO” type of viewpoint. The focus is on the investment from a big picture, rather than pouring over the details of daily property management.
Realize that once you choose which type of investor you want to be, you are going to save a lot of time and effort in achieving your goals.
For example, a Passive Investor should not go out driving around looking at properties with 3 different real estate agents, looking through units, getting bids on work that is needed, etc. It is simply a waste of their time because of the type of investor they are.
And an Active Investor should not waste their time looking at different partnership opportunities available with larger investment groups, and possibly in different areas than where they live. They would be much more efficient focusing on properties that meet their parameters in their current marketplace.
Realize that there really is no right or wrong answer in this decision, so I hope you get that.
Some investors are better at being active.
Some are better suited to be passive investors.
Again, there is no right or wrong answer. It is a personal choice.
Once you make the decision, you will be able to focus in on exactly who you want to be, thereby getting what you want to achieve…faster. Make this decision before you get started, and you will be much further ahead.
