The biggest challenge an investor has is determining what type of investor you want to be.
Let’s face it if you are a seasoned investor you have the experience of wisdom behind you and you can indeed be active investing in different kinds and types of investments. If you are new to investing it is paramount to identify your investment style. Do you want to be an active investor or a passive investor?
I ask people this all the time and most do not even understand the question. That lack of understanding can indeed cripple you right there. If you do not know what type if investor you are then you cannot properly share your objectives with the people suited to help you acquire and maintain the investments.
Let’s break it down into the active investor and the passive investor.
Active investors: Typically active investors are active in every role of the investment. They do their own due diligence; they negotiate the purchase and the contract. They are instrumental in the day to day operations of the investment. Active investors like to buy properties that need improvements and make money by increasing the values. They hire contractors and tradesmen and watch over the day to day operations. They watch over the day to day management of the tenants as well. In short an active investor is totally on the job and active in each step of the process. The active investors are typically seasoned investors who have experienced many different scenarios in real estate investing and are well equipped to make daily decisions to accomplish a preset objective.
Passive investors: The passive investor is a person who typically has his or her own career. They are good at what they do and they have a desire to invest. Their investments are typically passive in nature. Meaning they buy an investment that is typically already a performing asset. A tiny little business if you will, such as a turnkey property. This investor will make a purchase and have a property manager take care of all aspects of the investment. The passive investors’ most important role is to monitor the activity report that the property manager sends to them. Passive investors understand that a trusted and loyal power team of professionals in the field is paramount to the success of the investment. Typically a passive investor is considered to be an out of the area, out of state or out of country owner.
I have had conversations with people from overseas that try to do everything an active investor does but they want to hire all the work done and oversee the activity from afar. This always puzzles me. To be an active investor you really need to be present and oversee the operations.
Identifying whether you are an active investor or a passive investor will help give you clarity and help you to be more purposeful.
You should then break it down further. Do you want to invest in single family homes or multi family homes? Do you want to invest in raw land or in mobile homes? Do you want to invest for cash flow or are you a speculator hoping to grab appreciation as markets go up? You definitely want to get clear with yourself as to who you are as an investor and what your investment style will be. Then you can build a solid and purposeful investment portfolio.