ACTIVE VS PASSIVE INVESTING
Active and passive investing are two distinct approaches to investment, and they apply to various asset classes, including multifamily apartment investing. The primary difference lies in the level of involvement and responsibility that an investor assumes in the investment process.
Active Investing:
Active investing involves hands-on participation in the investment process. In the context of multifamily apartment investing, an active investor is a direct owner/operator or a general partner (GP) in a multifamily property. This role requires active engagement in various aspects of the investment, including property acquisition, management, and decision-making.
Key characteristics of active investing in multifamily apartments include:
- Direct Ownership: Active investors directly own a stake in the multifamily property and are responsible for its management and performance.
- Decision-Making Control: Active investors have a significant say in the property’s operations, such as setting rental rates, implementing property improvements, and making strategic decisions.
- Day-to-Day Management: Active investors are involved in the daily operations of the property, such as dealing with tenants, maintenance, and overseeing property management if not self-managing.
- Higher Time Commitment: Active investing demands a more substantial time commitment from the investor due to the involvement in property management and decision-making.
Passive Investing:
Passive investing involves a more hands-off approach, where the investor provides capital but is not actively involved in the day-to-day operations of the investment. In multifamily apartment investing, passive investors typically serve as limited partners (LPs) in a syndication or a real estate investment group.
Key characteristics of passive investing in multifamily apartments include:
- Limited Involvement: Passive investors entrust their capital to experienced general partners or syndicators who handle all aspects of the investment on their behalf.
- Diversification: Passive investors can diversify their investments by participating in multiple multifamily projects without the need to actively manage them.
- Reduced Time Commitment: Passive investing requires less personal time commitment, as the investor relies on the expertise and efforts of the active operators.