Active Or Passive Property Investment Methods
– Which Works Best For You?
There are many different approaches to property investment and a multitude of different methods and strategies that can be employed to generate profits from property, but which style of property investment methodology works best for you?
There isn’t enough room on this post to go into a great deal of detail about each and every different property investment method and strategy in use today, so we will just stick to a more broad descriptive about the advantages and disadvantages of active and passive property investment methods and we will focus on only the main points.
Property investors may have funds to invest in property but lack the time needed to manage their investment properties while others have more time than money. This is where the terms “Active” and “Passive” are used and can be thought of as:
- Active – Hands On
- Passive – Hands Off
Active Property Investment
This investment method requires hands-on involvement to create an acceptable uplift in income and potential long-term capital growth prospects and provides a higher degree of control for property investors depending on their previous investment experiences.
Taking an active approach means doing most of the important stuff yourself, including managing the property once it is purchased.
The benefits of the active property investment method include:
- Full Control – Allows faster decision making and also allows investors to react to market changes much faster, reducing potential risks.
- Increased Returns – No lettings or property management fees, no admin fees, increased capital gains.
- Financial leverage – Ability to mortgage properties requiring less of your own money to complete purchases.
There are many more advantages to the active investment method however these may depend on the specific property asset being invested in and there simply isn’t the room here to go into them further.
The potential disadvantages of active property investment include:
- Swapping more of your time for money – active strategies involve property investors becoming full time landlords, which means being on call 24/7 for tenants, property repairs and property maintenance.
- Legal compliance – Self management of investment property means ensuring all current Government and Local Authority legislation is complied with and adhered to.
- Increased stress – Self managing properties can cause landlords a lot of headaches and sleepless nights
Passive Property Investment
Investors who have funds available for investment purposes, but lack the time to take an active role in the management of their investments.
The benefits of a passive property investment method include:
- Requires less initial financial outlay – Many entry level investment products available, suiting new investors and pensioners looking to make pension funds work harder for their retirement.
- Fixed returns – Capital gains determined at outset, allows improved financial planning
- Reduced stress as no involvement in day-to-day management and administration
- Multiple investment assets available for investment – Hotel rooms, car parks etc – Allows risks to be spread across different investments using moderately low funds.
Disadvantages of the Passive property investment method include:
- Limited control of investments
- Requires in-depth due diligence on investment controllers – Research the people you will be giving money to before handing over a single penny.
- Reduced returns – Potential capital gains are often fixed and sometimes the market out performs them. More suited to assured cash flow as a regular income stream rather than long term capital gains.
The type of investment method employed depends on the personal choice and ability of the individual investor and with significant growth in the property investment sector over recent years there are more opportunities for investors to make their hard earned savings work for them.
Property investors should consider the points highlighted above and determine their own ability, experience and availability before opting for either investment method and the rewards should balance the input level required.
Both methods have merit and I have personally employed both, however I must say that the active property investment method may be more time consuming, but the rewards are greater, but so are the risks involved.
Passive investment methods do bring their own rewards, but from experience, these are much lower than the returns generated by taking a more hands on approach, but this may suit your level of desired input and control.
For more information about property investment methods, Due Diligence and maximising potential returns from property investment please visit MyPropertyPowerTeam.co.uk
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