Investing in real estate is complicated if you know how to do it. In this article, we tell you what options there are and what advantages each one has.
If you have decided to invest in real estate - and there are good reasons to do so - it is important that you know that there are two major possible strategies. In this article, we will tell you about active and passive investment in real estate, how these concepts relate, and which could be the best option for your financial goals.
The distinction between active and passive management is very common when talking about investment funds. In fund investing, active management involves active decision-making by professional fund managers with the aim of outperforming the market. These managers actively select and adjust the investments in the portfolio, which almost always involves higher management fees.
On the other hand, passive management seeks to replicate market returns and minimize costs by investing in a diversified portfolio of assets, such as stock indices, instead of making active decisions. This strategy tends to be cheaper for the investor and has consistently shown to outperform active management in terms of net return after fees.
But how do these differences apply to real estate investing?
In the real estate field, active investment is similar to active fund management, where investors make decisions and manage properties directly, while passive investment relates to investment strategies in diversified real estate vehicles or collective projects, similar to passive fund management. Basically, there are three ways to actively invest in the real estate sector:
Investing in real estate actively has interesting advantages: it offers greater control over investment decisions and property management, and has significant profit potential... if done correctly. But, as we said, the biggest disadvantage is the cost and the degree of knowledge and dedication it requires from the investor.
In contrast, passive real estate investment is similar to passive fund management. Investors do not directly participate in property management, but rely on professionals or participate in collective investment vehicles. In this case, there are three main ways to carry it out.
Among the main advantages of investing in real estate with a passive strategy, these stand out:
The main drawback of this variant of real estate investment is the lesser control: as with passive fund management, you cede direct control over the properties to third parties.
The choice between active and passive real estate investment will depend on your goals, resources and preferences. Active investment offers greater control and profit potential, but also requires a time commitment and knowledge. On the other hand, passive investment is less demanding in terms of time and effort, but implies reduced control.
It must be acknowledged that passive real estate investment offers options for a wide range of investors, from those with abundant knowledge and resources to those looking for a more accessible entry into the real estate market. The choice between the two depends on your personal profile and goals.
The key is to understand the differences and select the strategy that best suits your needs. As an investor, you can explore a variety of options and, as we tell you in the video, consider real estate crowdfunding as an interesting way to diversify your portfolio and access real estate investment opportunities. Whatever you decide, diversification remains a fundamental pillar for success in the world of real estate investment. Invest wisely!
