Real estate investors who receive passive income get their profits by investing in private notes. This is compared to an active real estate investor who is involved in mostly every step in the process. Either way, the returns are secured by real estate. For the active investor, there is an individual or group ofPassive or Active? individuals whose sole job is to identify potential purchases.

These properties may or may not be in foreclosure but they are typically in some sort of distressed situation. Perhaps the property is abandoned or has some physical condition that prevents a traditional bank from placing a loan on the unit.

Once a property is found, various metrics are put into play such as acquisition price, repair costs, financing costs and an exit strategy. Will the property be flipped once the unit is rehabilitated and if so, what will be the final financial outcome? Or, will the property be held for long term, building equity over time and collecting the monthly rent? The active investor repeats this process over and over and while one property is being renovated several others are under consideration.

The passive investor on the other hand, provides the financing for the proposed acquisition as the buyers rehabilitate the property and prepare it for final sale or rent. One isn’t necessarily better than the other but does require the active investor to participate in the project full time while the passive investor can hold down another job entirely or even be retired.  The passive investor need only evaluate the project and decide whether or not to invest. Both investors, active and passive, are involved in real estate but they get their returns in different ways.