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Active vs Passive: What Type of Self-Directed IRA Investor Are You?

Learn the difference between the two types of investing to determine which one is more suited to you.

Posted on April 19, 2021 by Sarah Shellam

active v passive

One of the biggest benefits of real estate investing with a Self-Directed IRA is the ability to have extreme flexibility no matter what type of lifestyle you have. Some people are full time investors, and love to spend all of their time searching for new rental properties or their next rehab project. But others simply don’t have enough time. With day-to-day life constantly moving, the thought of taking the time to find a property to invest in may sound daunting, which is why a more passive approach is appealing. The good news is, no matter what type of investing you prefer, Self-Directed IRAs offer something for everyone! 

Investing in What You Know Best

When getting involved in any investment, you always want to make sure you’re doing the best deal for you! Investing in things you are interested in and are familiar with will usually yield the highest returns. When you invest in things you don’t fully understand, you run the risk of doing something wrong. If you don’t like the investment, you won’t have any interest in it, which could mean losing money, as well. Taking the time to stop and think about what you are good at will typically help produce better results for your Self-Directed IRA.

Active vs. Passive: What Works for You?

As mentioned, your lifestyle plays a big role in the way you invest, too. A lot of investors still have a regular day job and can’t afford to dedicate all of their time to their retirement account. Passive investors can maximize their IRAs by finding investments that don’t take much daily maintenance. For others, real estate is a full time job, and doing a few deals in their SDIRA in addition comes easy.  These active investors can afford to offer more time to their investments. Common things that passive investors would dread, like dealing with tenants or property repairs isn’t as big of a hassle for active investors, since they usually have more availability.

What Investment Are Good For My Investing Style?

So, what type of investments would be good for you? Let’s analyze. As passive investing grows in popularity, more people are maximizing their Self-Directed IRAs with non-traditional passive investments. Real estate notes and private loans secured by property can be a great investment for the busy investor that can’t actively invest in real estate the traditional way. Multifamily and other private entity deals (i.e. include LLCs, limited partnerships, trusts, private stock, etc.) are also quite passive and don’t require much work from the Self-Directed IRA investor, making these great opportunities, as well. 

Active investors may prefer to seek out physical property, using their Self-Directed IRAs to purchase rehabs or potential rental properties. Wholesaling and fix-and-flipping are gaining popularity among IRA investors, too. The beauty of real estate is that it offers safety and security by being a tangible asset. You can drive by a property and actually see, touch, and feel the investment, which gives active investors assurance. Below is a helpful chart that can help you weigh which option might be best for you.

Investing is different for everyone. There will be pros and cons for whatever type of investment appeals to you. In the event something were to go wrong with your investments, understanding what to do will also help you determine if the investment is right for you. Most important thing to do is find an investment that you like and are comfortable with. If you have questions about starting your Self-Directed IRA to invest actively or passively in real estate, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.


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