Active Vs Passive Real Estate Investing

Understand the difference between active and passive real estate investing to determine which strategy is right for you!

Identifying the appropriate real estate strategy begins with figuring out what type of investor you plan to be. You can choose to be an active investor who is actively involved in the investment from start to finish, or you can choose to be a passive investor whose only role is providing capital. Consider the differences between active and passive investing to determine which strategy is right for you.

What is an active investor?

As an active investor you seek out and purchase a property directly. This strategy requires capital for purchasing the property, time, and a certain level of skill and real estate knowledge. The active investor is heavily involved in decision making and must be well versed in real estate and analyzing financials in order to maximize returns.

What is a passive investor?

A passive investor is someone who does not wish to participate in the decision making or managing of the property. The extent of a passive investor’s involvement is partnering with a firm to provide capital and in return they receive recurring distributions from the property.

Pros and Cons of Active Investing

The major benefit of being an active investor is higher returns. If you are actively involved in the investment, you don’t have to split the returns with anyone else. Being an active investor also gives you complete control. Although having complete control does have its advantages, it also means that you assume 100% of the risk. Some investment properties are riskier than others, so it’s the active investor’s job to do their research and have a meticulous process. This is why it is important for active investors to be knowledgeable about real estate investing.

Pros and Cons of Passive Investing

Passive investing can be great for individuals who want to make additional income, but don’t have the real estate knowledge or time to actively participate. The returns won’t be as fruitful, however, you receive a percentage of cash flow periodically without ever having to step foot on the property. Given that you are only providing capital and are not offering up any of your time, you won’t have any say in decisions regarding the property or how it's managed, which could be considered risky.

How to choose which strategy is right for you

Expertise, money and time are the three biggest contributing factors to examine when evaluating which investment strategy is most appropriate. If you have the money, but not the time or expertise then passive investing might be best for you. If you have the time and money, but not the expertise that does not necessarily mean active investing is out of the question. With the proper research, anyone can gain the knowledge required to be an active investor.

Partnering with a seasoned lender can help! Check out our blog post on the advantages of using a private lender to discover if private lending can fund your next investment!

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About CALCAP Lending

A division of CALCAP Advisors, CALCAP Lending benefits from the expertise of a seasoned team of professionals with extensive, successful track-records covering a variety of disciplines and leading large, nationally-recognized institutions. A private money direct lender, CALCAP Lending provides short to mid-term financing for property investors and businesses looking to purchase, refinance, renovate, and construct residential or commercial properties.

Lending FAQs

You've got questions, we've got answers.

What is private money lending?

Private money lending is a collateral-based lending strategy that is often associated with shorter terms and more attractive features. A private money loan offers more flexibility than a conventional mortgage or bank loan.

How does a private money loan work?

Private money lenders provide financing using money from private entities. Private money loans often work as bridges to help investors gather funds to achieve their short term real estate goals, but long term, permanent options may also provide.

Why would I choose a private money lender?

There are many advantages to using a private money lender for your real estate investments! Private money lenders can be more lenient when it comes to borrower credit issues, often there are no prepayment penalties, you can leverage your cash to buy multiple properties, and private money loans are quicker when compared with institutional loans.

Can I get prequalified for a loan?

CALCAP has a responsive loan team who are able to prequalify you. Contact a loan specialist at 833.816.5580 to get started.

How long does the lending process take?

Private money lending can be a quick and painless process. From start to finish, 30 days is common, however, turn around times can be as short as 10 business days.

Can I still be approved for a loan if I have bad credit?

Generally yes, we understand that people have temporary financial issues that come up, and we want to work with you to help you rise up financially to a better place. Offsets to credit concerns may include experience as a real estate investor, good cash reserves, and/or larger down payments.

I am a broker or investor, how can I work with CALCAP?

Business is built on relationships. Ours is no different. CALCAP Value and Preferred Partners receive exclusive rates and services. For more details and to submit your application, visit our partners page.

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