A real estate investment can be tailored in two ways to meet the unique needs of a specific investor- Actively and Passively. People wrongly assume that all real estate investing is passive, that’s simply not the case. Those who make this mistake will often realize that buying, owning, and managing real estate directly is more intensive than anticipated.

Perhaps you’re on the fence as to whether investing actively is the right move for you. Maybe you’re curious about being a landlord or you would like to try your hand at flipping a property. Or you’re still in the early research phase or getting started in real estate investing, here’s a rundown of the two ways to invest in real estate.

Active Investment

Active real estate investing is when a person is directly involved in the investment process. This investing requires your time, capital and your risk. An active investor fully engaged in the investment process from beginning to end or heavily in parts of the process such as acquisition or renovation, the level of commitment that is required by active real estate investment often equates to a full-time job.

Passive Investment

Passive investment as the name implies is a way of generating passive income through real estate. You make an upfront investment and then receive an ownership stake in that investment. What makes this form of investment passive is that you are not directly managing the investment.

Active vs. Passive Investment, Which is Better?

Risk

Active real estate investing tends to carry more substantial risk than passive real estate investing. Unless you are experiences and knowledgeable about real estate investing, you might want to stick with passive investing where a team of professionals will spearhead all active real estate activities, from acquisition to construction and ongoing property management. Moreover, with passive real estate investment, any risk is shared across multiple parties. If something goes wrong, you won’t be solely responsible for identifying and funding a resolution.

Time

How much time do you have to devote to your real estate investments? Active investment requires substantially more time, both during the initial acquisition, as well as throughout the lifecycle of the project. With passive investment, on the other hand, you do some upfront research and vetting, but once you invest, you do not need to put in any additional time.

Profit

As an active real estate investor, because you are putting in the lion’s share of the time and work, you are also rewarded with the lion’s share of the profits. As a passive investor, you will be sharing profits

However, investing in real estate is a great way to generate additional income, create long term equity, and have impact on people and communities. Whether you invest actively or passively is up to you and your unique/financial situation, goals and interest. Nonetheless, the long-term holding strategy is generally more appropriate for those who use real estate as a core portion of their overall investment portfolios.

Either way, there are lots of opportunities out there, so you may want to try both ends of the spectrum.