Active vs. Passive Investing

What is the REAL difference between ACTIVE and PASSIVE Investing?

At this point in our series on Real Asset Investing, you should be familiar with how StoneCrest Equity Partners is accumulating multiple pieces of real estate using a syndication fund. Once we acquire, develop and stabilize these assets we share in the cashflow and equity with our investor partners.

I am sure you have questions, and we are here to help answer them all. To start, one of the most frequent questions we get is “Why should we invest with you instead of just buying a property ourselves?” This is a completely valid question, and the answer is “you absolutely can!”

However, there are tradeoffs.

If you bought a property, you would be considered an ACTIVE investor. You would keep 100% of the cashflow and you would be 100% responsible for getting the work done. This in my mind, is the complete opposite of trying to grow your wealth with less work.

And I would bet your returns would not be as good as investing in a syndication partnership.

Let me outline the differences between being an active investor and a passive investor so you can make an informed decision.

  • Active Investor: Actively manages the investment. 

  • Passive Investor: Takes a hand-off approach, allowing others to manage the investment. 

Active Investing Example:
 
  • You invest $50,000 as a down payment on a rental property, secure a $150,000 loan, and purchase a $200,000 property.
  • You hire a property manager to find tenants and collect rent.
  • You handle repairs and tenant turnover.
  • You control the investment, decide on improvements, and determine when to sell.
  • You keep all the profits. Returns are usually in the 5%-8.6% range.*
  • Even though you are ACTIVELY doing everything, IRS considers rentals a PASSIVE activity so there is no increased tax benefit for all the extra work.
 

Passive Investing Example:

  • You invest your $50,000 into a group investment rather than a single property.
  • Your funds are pooled with other investors to buy larger assets, like an apartment building.
  • Your active involvement ends after the initial investment.
  • You receive regular cash flow distributions during the hold period and a share of the profits upon sale.
  • You avoid the day-to-day responsibilities of property management.

 

The Key Differences:

  • Control vs. Convenience: Active investors maintain full control but bear all responsibilities. Passive investors relinquish control but avoid the work involved.
  • Potential Returns: Passive investments (syndications) can potentially double or triple your investment, compared to the typically lower returns of individual rental properties.

 

Ultimately, the right choice depends on your life situation. If you need more information or are undecided, give us a call. We’re here to help you achieve greater wealth with less effort, if that’s the path you choose.

We hope to help you develop your own personal investment philosophy so you too can increase your passive income stream. We are very passionate about helping you develop a strategy that will grow your wealth, while providing more time to pursue what matters to you.

I hope you have enjoyed the newsletters so far. If you would like to further your investment education consider joining our StoneCrest Equity Alliance where you will be the first to know about upcoming opportunities, get invited for exclusive site visits and receive even more in depth knowledge on syndications.

As always, we are here to answer your questions and help you achieve more wealth.