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Hello and thanks for coming to this private page today. If you are here it is because you tuned into the podcast on Wednesday expecting another episode of great information on the subject of financing in property.
Sadly, the show is slightly delayed this week, so for the next 24 hours only, this post is available as a small reward for you keen beans!
Here follows an extract of the draft article for my upcoming YPN magazine column, which is all about active versus passive property investment. This, I hope, makes up a little for the slight delay in this week's show.
Active or Passive Investment: Where do you sit?
If you have hung around in any investment circles for any length of time, then you will no doubt have come across the term ‘passive investment’. It is often used to sell an easy way to make money with apparently no effort on our part and as such can obviously sound very appealing indeed.
But let’s put the record straight right from the start – I am sorry to say; no investment is completely passive and all investments require at least some level of activity on our part.
One of the largest determinants of how active an investment is, of course is…time.
Whether we are looking at full-time, part-time, spare-time or next-to-no time, there will be some level of time input required that’s for sure.
Full-time in property (30+ hours per week) is probably not really property investing at all and is instead either a job or a business occupation of some description. Some examples of some strategies that can be operated full-time might include property development, lettings agency / management and highly intensive ‘transactional’ strategies such as HMOs, rent-to-rent and short-term lets.
Full-time may not be open to or indeed desirable to everyone anyway, so time limitations can automatically rule some property strategies in or out for some people altogether. For others, becoming full-time in property seems to be an aspiration itself…and that will mean full-time is about as active as it gets!
Part-time in property (15+ hours per week) is also akin to some sort of labour-related activity as well. It could be a cut-down version of the full-time in property list above, or it could be more occasional in nature, such as project management, deal sourcing or larger-portfolio self-management for example.
In many of these full-time and part-time cases, there is still likely to be a close relationship between time and earnings, make no mistake about that. Therefore, many would be considered to be active rather than passive.
Spare-time in property (2+ hours per week) is where things can begin to move away from active into passive investing. For example, the odd buy-to-let property, or a light refurb, mostly outsourced flip project could fall under this heading.
Next-to-no-time in property (less than 2 hours per week) is perhaps the ultimate attention-grabber of them all. If you have a job or business outside of property, have you ever clicked on some sort of ad or article that promises an ‘arm-chair or deck-chair Investment’ or one that ‘will make money while you sleep’? Yes, thought so…me too!
There are one or two property strategies that fall into this heading though for sure. A fully outsourced BTL property or two, becoming a private money lender, silent JV partner or REIT investor among them. However, spoiler alert – still none of these are fully passive, or rather I would like to suggest that they should not be fully passive, which is a subtle distinction I shall return to.
But, time alone is not the only factor to influence our choice of passivity when it comes to making money in property. Some of the other aspects that can influence our choice of strategy and the level of activity we assign to it include: personal preferences, lifestyle choices and personality type. In the full article, these are elaborated upon a little further.
Then, of course, we have our resource trade-offs as I previously mentioned in the YPN issue 98. The main trade-offs are time, money and knowhow. We have addressed time already, however, access to money (capital for investment purposes) and our level of knowhow (understanding and experience) can also have a bearing on how active we can be in property as well. In addition, we could add to this list systems (processes, apps & tech) and other people (staff/contractors and business/service partners) as additional tools and resources to help us to leverage and scale our personal activity level through other means.
Our level of passivity in property can sit along a scale and is influenced by our resources of time, money, knowhow, systems and other people resources. But, equally our personal characteristics, such as our preferences, lifestyle and personality. It is a balance between the tangible and more intangible facets of our life, especially if we plan to love what we do and not chase the money.
Either way, it is unlikely to be completely passive though. As I mentioned earlier, all investment strategies should have some level of activity attached to them, this can be due diligence, check-ins and post-mortems after the event at the very least. It may require much more than that in some cases, though.
So, where do you sit on the scale of passivity?