Posted by Last week, I took a look at passive investing, exploring how it can work for cash-rich, time-poor individuals who might be looking to make some changes to their working life. It’s the hands-off approach that allows you to generate returns without spending even more time working than you are already.
But what if you’re after something a bit more exciting? That’s where active investing comes in.
As an active investor, you’ll be looking for property that you can add value to and make a profit from, which you can then roll into your next deal. It’s a far more dynamic prospect, but you do need to give serious consideration as to whether you have the capacity to be able to do it or not, because it’s time-consuming stuff.
So this week, I’m going to look at what it involves and the potential upsides and downsides, so you can see for yourself if it’s right for you, whether that’s now or in the future!
What is active investing?
Active investing is all about getting stuck in and taking a direct approach to your investments. Unlike passive investing, where you might buy a property and just rent it out, active investing means you’re taking action to increase the value and improve the performance of your assets.
At its core, it’s about being proactive: spotting opportunities, making strategic decisions, and putting in the work to increase your returns. That could mean anything from renovating a property to developing a plot of land from.
You’re not just an owner or a landlord – you’re a strategist, a project manager, and sometimes you might even be a handyman, if you’ve got the right skills (though I’d always recommend calling in a pro for a big job).
What does active investing look like?
As with anything, there are levels to active investing:
Property investor – You’ve got some experience with property (beyond simply renting out) and you might do buy-to-lets or flips, or single property deals. It’s entry-level investment type stuff, not that sophisticated, but a good place to start.
Property developer – This is more complicated. You may own, or you want to buy a piece of land to build on, which means there’s slightly more for you to think about on each deal. You have to think about planning, hiring architects, construction… It’s more involved, but you stand to make bigger profits in the long run.
Real Estate entrepreneur – This is Real Estate on a far bigger scale. You’re looking at structured deals and more likely to be dealing with investors and banks. You’re dealing with multiple streams of revenue and different projects. It’s really upper-level stuff – a career rather than a side-hustle.
However, if you’re thinking about where you want to be in the long run, real estate entrepreneur isn’t necessarily what you need to aim for: you don’t have to have plans for global domination! The important thing is to be really clear about what’s best for you, the lifestyle you have now, and the lifestyle you want.
The upsides of active investing
Now, let’s take a look at the pros and cons of active investing.
Presumably, one of the reasons you’re considering it is because you want more control over your working situation, and active investment definitely gives you that! As an active investor, you’re in the driver’s seat, deciding which properties to buy, how to improve them, and when to sell.
As I said last week, one of the downsides of a passive investment strategy is the fact that you don’t really have much opportunity to add value to your assets. With active investment, you’ll be looking for ways to add value wherever you can, and by increasing the worth of your properties, you’ll find that the returns are likely to be far greater.
You’ll also learn a lot. After all, there’s no better way to learn about anything than by doing it, and active investing provides hands-on experience that can quickly bring your knowledge and skills up to scratch. You’ll also be in a position to build a fantastic network of professionals around you – remember, it’s not what you know, it’s who you know!
One of the best bits though, certainly for me, is the thrill of transforming a rundown property into a beautiful home or seeing a development project come to life from the ground up.
What about the downside?
Of course, it’s not all sunshine and roses – I’d be lying if I said it was. While active investing can be rewarding, it’s important to go in with your eyes open.
It’s very demanding, and you’ll need to be able to commit a huge amount of time to it. You’ll be researching markets, viewing properties, overseeing renovations, and managing tenants or sales… so if you’re already juggling a full-time job and other commitments, then you’re going to struggle.
When I started out, I had my own architectural practice and was my own boss, so it meant my time was largely my own and I could (for example) run out at lunchtime to meet a builder. If you’re working 9-5 you might not have the space to do this.
Then there’s the stress! With more control comes more responsibility: you’re the one making the big decisions, and unexpected repairs or issues with difficult tenants can and will keep you up at night. You’re also more vulnerable to market fluctuations. A sudden downturn could leave you with a property that’s hard to sell or rent.
Financially, active investing often involves more substantial upfront costs. Whether you’re purchasing a property to flip or funding a renovation, you’re tying up more of your capital. If things don’t go as planned, you could face significant financial losses, and no matter how well you plan, surprises are inevitable. Hidden structural issues, permit delays, or contractor disputes can all throw a wrench in your plans and budget.
Remember, none of these downsides necessarily make active investing a bad choice. They’re simply the realities you need to be prepared for. Successful active investors find ways to mitigate the challenges, through careful planning, continuous learning, and building up a reliable team of professionals.
Weighing it all up
So with all that said, how do you decide which strategy is best for you? The key to it all is being really focused on where you’re trying to get to, knowing what your goals are.
Do you want something that keeps you as busy as you are now, but where you’re far more in control, or do you want something steadier and less full-on, where the returns might not be as great, but then again, neither is the stress!
Being clear on your BHAG (your Big, Hairy, Audacious Goal) will be your guide and will give you an idea of where you should start if you’re looking to move fully into a career in real estate, but if you need some additional guidance, why not take a look at the programs I have on offer to find the one that’s right for you!