The Step-By-Step Guide for a Passive or Active Investor
by Christopher Levarek
“However beautiful the strategy, you should occasionally look at the results.”
- Winston Churchill
A common scenario among new investors in real estate is what is called “analysis paralysis” or the inability to choose a strategy or investment. This quite often keeps an investor from taking advantage of opportunity as they wait for the right moment in time, the right property or the right strategy. With the overwhelming number of strategies and possibilities for investing into real estate, this is entirely understandable!
In a recent free ebook I wrote, “Your Path to Freedom : Key Fundamentals for Investing as a W-2 Earner”, I discussed the differences between Active/Passive Investing and 6 reasons why someone might choose to take the road of the Active Investor or Passive Investor.
Today in this post I will give the guidebook or methods for getting started in each. With both the ebook and this post, one should be able to choose Active or Passive investing and take the action to begin the journey without getting hung up on all the options.
Here is a simple guide to start investing actively in real estate opportunities :
Active Investor - What & How to get Started
Active investing simple means having the ownership and responsibility of the entire real estate investment. So acquiring, renovating, managing and even selling the real estate property. There are multiple strategies for investing into real estate however we will cover a simple step by step method to getting started as an active investor :
Step 1 : Educate
Since you are reading this post or have read the ebook, you are already on step one. The goal here is to read as many books, listen to as many podcasts and join as many networking events as possible. Learn and absorb information.
Step 2a : Select a strategy with a Timeline
Now pick a strategy that you feel good about and set a timeline to achieve it. Pick something that you can see others have done. In those networking events attended or podcasts listened to, what strategies keep coming up for new investors getting started?
Pick one that you align with and you feel comfortable with. Set a timeline, of 90 days for example, to get it done.
Step 2b : Find someone who has done it and copy them
Look for a mentor or friend/family member or newly found network acquaintance. Search BiggerPockets for keywords related to your strategy. Find people who’ve posted on the subject and contact them. Or simply read about how they executed the strategy on a post, social media article, etc.
Step 3 : Take Action
Now take action daily. Work on your selected strategy. Keep refining your efforts and continue to put one foot forward no matter how small. Take that call, make that offer, read that book, etc.
Step 4 : Repeat
Review your results. Note your shortcomings or if you achieved your goal in your timeline. Go back to Step 1 and repeat to grow your portfolio.
If anyone executes the above steps, they will become an active investor expanding their knowledge, gaining investing experience and growing their portfolio as an active investor.
Passive Investor - What & How to get Started
Passive investing is simply when a real estate investor invests into an investment to which they do not need to have much responsibility or commitment. Similar to investing into the stock market, the investor is investing into a real estate offering that is managed by another investor or company.
Here is a simple guide to start investing passively in real estate opportunities :
Step 1 : Educate
Yes, this is the same step as becoming an active investor. Understanding what is out there and the benefits/risks of certain real estate investments is critical. Again, the goal here is to read as many books, listen to as many podcasts and join as many networking events as possible. Learn and absorb information.
Step 2 : Investment Goals
Clarify your investment goals. What is important to you? Are you looking for high returns? Do you want tax benefits or paper loss to offset other income? What kind of risk are you comfortable with? What kind of timeline would you feel comfortable with before a return of capital is given?
By asking these questions, you can set some investment criteria and goals to which you can measure discovered real estate investments. Everyone has different reasons for investing, what are yours?
Step 3 : Find an Investment & Select a Provider/Sponsor
Attend Network events online or in-person. Discuss with others what you are looking for related to your investment goals. Join online networking sites such as BiggerPockets. Search for keywords related to investment types you’ve read or heard about.
Search the web for providers or sponsors offering services or investments. Search in Linkedin, Facebook, Instagram for certain keywords, hashtags or names related to these investment offerings.
Step 4 : Due Diligence
Perform some due diligence on the group, person or sponsor. Read reviews, recommendations on the Social Media accounts or forums. Search for the group or person’s past projects or investments completed. Speak with others who have invested with the group or who have done a similar investment.
Now connect with people offering the investments above. Email or message them in Linkedin, BiggerPockets, Facebook, etc. Set up a online call or meet with them in person to discuss the investment model or offered investments.
Create a list of important questions relative to your investment goals and be sure to ask all of them. How does the sponsor respond? How does the interaction feel? Trust and credibility are important in real estate investing so be sure to trust your instincts and feelings when vetting a sponsor or group.
Step 5 : Select an offering or investment
Now choose an offering or investment. Typically this will require some paperwork to be signed giving some form of ownership or share ownership, similar to stocks, of a piece of property.
Have a legal team review the paperwork if necessary and even use search features on a computer to look for “key words” in the legal document that are important to your goals. Don’t rush this phase!
Sign the documents. Wire the funds, after verifying wire account information as needed.
Now monitor the sponsor communication and passive income or quarterly/monthly returns over the life of the asset.
Step 6 : Repeat
As you learn which sponsors or offerings you prefer, you adapt and grow your portfolio. However continue to follow the above process for each investment. A passive investor who continues to learn, vet each investment/sponsor and adapt their strategy as needed is sure to achieve their investment goals with success.
In Final
Although the above steps for investing as a passive or active investor are high level, these really are the basics to getting into real estate. The strategy can vary but the fundamentals rarely change.
The key is taking action and moving forward daily in a direction with purpose. If you are having trouble deciding between investing actively or passively, be sure to read the free ebook. As always, Invest Smart!