You Don’t Have To Be Active To Profit

In the investing world, there are two types of investors: active and passive.

Successful investors can be found in both camps and here are some of the traits of what makes both types of investors successful:

The Successful Active Investor

  • They’re well-connected in their local market by fostering personal relationships to find and sniff out off-market deals.
  • They’re good at analyzing deals and conducting due diligence.
  • They do their homework and ask the right questions.
  • They’re financially savvy.
  • They’re skillful negotiators.
  • They’re hands-on. They could do most of the work themselves even if they ultimately decide to outsource some of it.
  • They’re good multi-taskers.
  • They’re hard workers – willing to put in the time and the effort to see a project through.
  • Willing to devote the time to acquire the knowledge and expertise to become successful.

The Successful Passive Investor

  • They’re good at analyzing deals and conducting due diligence.
  • They do their homework and ask the right questions.
  • They’re financially savvy.
  • They’re skillful negotiators.
  • They know what they don’t know and are willing to rely on experts to partner with.
  • They’re more interested in fostering their own core business or career to save and then invest with a proven team.
  • Time is a priority so acquiring knowledge, expertise, and access to deals is not a consideration.
  • They understand the power of leverage to maximize returns – leveraging the skills of others, leveraging tax benefits, leveraging debt, etc.
  • They recognize the traits of skillful managers.

 

If you notice the list of what makes successful active and passive investors, you’ll notice a lot of similarities: They’re good at analyzing deals, they do their homework, they’re skillful negotiators, they work hard, etc.

The difference is they focus their skills on different things:

  • The active investor focuses on the asset.
  • The passive investor focuses on who’s running the show.

 

While active investors leverage their time, effort, knowledge, expertise, and financial savvy to maximize returns on specific assets, the passive investors would rather leverage that time, effort knowledge, expertise, and financial savvy to maximize returns on multiple assets by leveraging the expertise of others.

The successful active investor would rather analyze and conduct due diligence on the sponsors and managers of multiple investments instead of concentrating efforts on a single asset or project.

Here’s what you should know about the successful passive investor:

MOST SUCCESSFUL PASSIVE INVESTORS WERE ONCE SUCCESSFUL ACTIVE INVESTORS.

 

Many initially made their money starting and running their businesses or buying and selling their assets.

  • They’ve done the legwork and know what needs to get done from a management standpoint.
  • They know when a sponsor knows what they’re talking about and when one is just blowing smoke up their skirts because they’ve been there.
  • They know what it takes to be a successful active investor and know how to spot it in others.

 

By knowing what to look for in expert sponsors, the successful passive investor can leverage the expertise of others to invest in multiple cash flowing projects across multiple geographic locations and asset classes, ensuring continuous income and appreciation in any type of economy.

The successful passive investor has proven why you don’t need to be active to profit from investments – especially real estate.

 

Here are some reasons why:

Boots on the Ground –

Real estate investing is all about finding values – finding off-the-radar properties nobody else knows about with killer cap rates.

Passive investors know that it’s personally impossible to build the types of relationships in every market in every asset class needed to find those off-market and bargain deals.

For example:

If Sponsor A in Market X who invests in Asset Y already has those relationships, has the experience and expertise to turn deals into gold, why not find more sponsors like Sponsor A in other markets investing in other asset classes to build a truly recession-proof portfolio?

 

Like Riding a Bike –

Successful passive investors have been around the block. They know how to analyze every minute detail of a potential deal including cap rates, market demographics, and indicators, expenses, zoning, renovations, financial projections, property management, personnel, exit, etc.

Analyzing deals is like riding a bike for them. No need to get their hands dirty when they can let someone else do it if the metrics make sense.

 

Diversification –

Passive investing allows savvy investors to diversify at levels impossible to achieve with active investing alone.

With active investing, investors tend to put all their eggs in one basket – whether in one business or property and usually in one geographic location. This exposes the investor to financial risk that can be asset-specific and market-specific.

You don’t have to be an active investor to profit from cash-flowing investments.

You could be even more profitable than the active investor by leaning on the expertise of others and partnering with successful managers to achieve true recession-proof cash flow and growth without limiting yourself to the number of hours in the day.

About the author

Investor, writer, speaker, and founder. Kyle Jones, key principal of TruePoint Capital, is accountable for investment decisions, asset management, and overseeing financial activities, operations, and investor relations. Kyle additionally is a Global Sales Leader for a large Fortune 100 technology company. Kyle received a Bachelor of Science degree from Texas State University – San Marcos.