Active Investing Versus Passive Investing

Active Investing Versus Passive InvestingThings I have learned along the way switched my real estate investing style. 38 years ago I purchased my first investment property. I was 15 years old and after mowing a newly developed subdivision that the local developer hired me to take care of for the summer, I had an epiphany. I knew that houses would start to be built on the lots and as the empty lots became overshadowed with more houses and there were less free lots that the value would indeed rise. Yes, even at a young age real estate intrigued me. The short story is I bought the very first lot that was sold. Of course I had my dad to do some co-signing on papers, but I bought the lot, quickly planted some fast growing trees so that my lot would become more valuable as they grew. Voila, just like that my real estate investing career was off and running. 3 years later when I was 18 years old (now an adult), I sold this plot of land for a $3700 profit, which back then was lots of money. I used this money to buy my first Duplex.

I Was On To Active Investing

Obviously as a 15 year old boy my knowledge was limited. I was eager to invest because I grew up helping my dad fix and renovate all the properties he was buying. He kept buying properties and renting them out which suggested to me this is what you should do. It wasn’t until years later that I actually internalized the lessons I learned from that first investment. While I did very well getting a great return from the sale of the city lot it indeed was more of a hopeful; or speculative investment than an investment that offered me controls.

Additionally the investment only offered me equity growth. It did not generate any ongoing income. It was more like a forced savings plan that I paid into each month in hopes of a nice increase over time. The Duplex I bought next actually gave me monthly income. I lived in one half of the duplex and the tenant paid my entire mortgage. How cool is this I thought? So I continued to buy Duplexes and Fourplexes to generate monthly cash flow.

Interesting Education From The Streets

My discovery was these small multifamily investments were like an ATM machine. They spit out green month after month. That was the good part. The bad part is the ATM machines always appeared to be breaking down. The comparison of course is they were an awful lot of work to maintain. Neighbors always complaining about the other neighbors, common areas such as hallways and laundry rooms were being trashed and left messy. People always would block the entrance doors open so they did not need their keys to get back in and the wind would come and damage the doors. Outside water faucets were always being left turned on causing the water bill (which was landlord paid) to be very high.

I indeed loved this income producing investment but after enough time I was getting frustrated with the headaches around trying to maintain the profitability. Cash flow was so strong, but all the uncontrolled expenses were souring me. So I thought I should invest in things like Condos and Townhomes. My thought was that individual ownership would alleviate the headaches of getting calls complaining about the neighbors as these neighbors were not affiliated with me. Additionally, all the common area concerns and expense were now belonging to the Association and I could lose that headache as well.

All These Hunches Played Out In My Favor

I continued to struggle with controls over expenses though. Foreclosures and short sales that were going on which meant the HOA was not collecting for these units as the owners simply could not afford to pay them. The HOA fees continued to climb with only a month’s notice and periodically there were assessments for things like pool repairs or driveway maintenance that made it impossible to ascertain true ROI. My new challenge was how do I maintain control over expenses, avoid all the hassles of common interest communities and maintain great ROI.

Active Investor Turned Passive Investor

There was no question that over the years I picked up much knowledge about investing. Not even being cognitively aware of it until now, I was an Active investor. Having learned many hard lessons and gaining more and more interest in long term investments that were headache free. Finding investments that would allow me to hold on to my free time was becoming much more important than squeezing every possible penny from an investment. It was now time to work smart instead of working so hard. I wanted to buy investments that other people could do the day-to-day management for me. I wanted to avoid the challenges of communal type investing that condos, townhomes and multi-family properties would have as well as gain positive controls over all my expenses.

Single Family Turnkey Investing

Indeed I found tranquility in passive investing. I found that buying and renting single family homes was the exact investment that my years of experiences were leading me to. I found that tenants of these properties were more interested in having a nice home. The expression, “a man’s home is his castle” applies to everyone in a house whether they rent it or own it. It is their own private and independent domain. I found these investments to be low headache, and very high on expense control as tenants pay all variable expense such as lawn care, utilities and smaller repair items.

I found with these passive investments I simply had to do my upfront diligence to make sure I buy correctly and then duplicate the process. I could create more time and freedom to buy more property and those additional properties would bring me in more ROI. I am now able to enjoy the freedom that I was unable to acquire when I was an active investor.

Find out more about where to find these turnkey real estate investing properties today!