Passive Investing vs Active Investing: What’s Right For You?

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Passive Investing vs Active Investing: What’s Right For You?

When people think about property investing they imagine spending time at auctions and open houses, competing for a property that they hope is going to be a winner. But there is another way.

When people think about property investing they imagine spending time at auctions and open houses, competing for a property that they hope is going to be a winner.

But there is another way.

Finding a winner takes a lot of work, not just in actually attending the homes but the research you put in beforehand. 

Plenty of people find this process enjoyable, fun and rewarding. But what if you're not into doing that kind of legwork? 

Well fortunately for you that isn't the only way you can get into property investing. 

Today I am going to briefly introduce you to the differences between Passive Investing and Active Investing, so you can decide which of these paths are right for you.

What Is Passive Investing?

Passive investing is a type of investing that separates you from almost all of the hands-on work, which means that all you have to do is choose a Real Estate Investment Trust (REIT) to invest in.

Then the trust does all the legwork for you.

Of course, actually choosing a fund does take a bit of work, so you should research the following:

Returns - Which funds have the best, most consistent, returns on investments?

Managers - Who are the managers, how long have they been doing it, and what is their reputation?

Types of investments  - What are they spending your money on?

Trading - Does the REIT trade regularly enough that you can enter and exit as you want to?

Franking and distributions - How much, how often and do you receive franking credits?

These are just a few things that you'll need to consider before buying into a REIT, and there may be tax implications as well so you should speak to your accountant about that.

But once you've done that you'll have done all the work required of you, the REIT should be doing whatever it can to give you a return on your investment. That said, you'll also have limited control over what the REIT does invest in.

So with passive investing, you have less to worry about but also limited control in the investing process.

So you really need to consider whether you trust other people doing the investing for you, without your input.

This can be a great way to get into the property market. Especially if you're time-limited, or you don't have the passion for property and are just looking for an investment opportunity that isn't the stock market.

So What Is Active Investing?

Active Investing is the more fun side of investing. You'll be looking for, buying and managing properties yourself.

And you'll be taking all the risks that come with that.

We've written extensively about the things you need to do before buying an investment property, and so if you've been following along you'll know exactly what you should be doing when it comes to investing in property.

(If you're not sure where to begin start with these six tips to property investment success.)

The biggest benefit you have when choosing to actively invest is control. Ultimately you're the one choosing the locations, properties and what strategies you want to employ to make your investment grow.

You're in control, and it is your hard work that makes the investment pay off in the future.

Of course, you'll get to actually own the properties you buy as well.

Working with a property investor will alleviate much of the headache that active investing brings, so we highly recommend that you do so.

So What's Right For You?

At the end of the day, this will come down to personal preference. 

Are you the type of person that can trust others? Would you prefer to do less work? 

Then perhaps passive investing is for you.

However, if property investing is something that really excites you, and you love the idea of having control over your investments then you should consider active investing.

If you're still not sure which type of investing strategy is right for you, then get in contact with us and together we'll work out what is your best option.

Because we're all about ensuring you invest with confidence.

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