When investing in real estate, choosing to actively invest or passively invest is like choosing whether to take a taxi to a Broadway show or drive yourself. If you drive yourself, you could take your own route and possibly get there quicker. Yet you may also get lost, have to pay the toll booths along the way, stop for gas and pay the valet to park your car. If you take a taxi, you find out what company has the best service, pay for the trip and sit back and enjoy the ride.

Passive real estate investing would be taking the taxi to a Broadway show: research your investment, understand the risks involved and sit back and collect your returns. Passive investors provide the capital for those who deal with these day to day stresses and can collect their returns without ever leaving their homes. They will also forego the process of administrative duties such as: title searches, dealing with banks, inspectors and appraisers.

This is not necessarily as easy as it sounds, and the real work to passive investing is performing due diligence before the investment. If one blindly chooses an investment without proper research, it is akin to gambling. It is imperative to have a solid understanding of different aspects of the investment such as: associated fees, the company’s track record, the company’s investment strategies, the projected returns and how it compares to competitors.

What draws people to active investments is the chance to flex their real estate muscles in order to produce very high above market returns. Some of the everyday problems active investors face are: dealing with tenants who don’t pay rent, tenants who damage the property or need constant maintenance work. To further illustrate these challenges, you can read about a first time landlord who felt he was getting a deal on a rental property but fell on hard times when he lost his job.

Other active investors may want to buy a “fixer upper” property for a low price and actively renovate it to increase the value to turn a profit. This form of investing not only requires an advanced level of real estate skill and knowledge, it requires a lot of time and effort. Anyone who gets involved in active real estate investing should be prepared for unexpected costs along the way, some of which can be very significant: roofing, plumbing, and damage from natural disaster are just a few.

In all likelihood, you will make some mistakes along the way and lose some money in active real estate investing. An investor can find an amazing deal on paper, but when it comes to managing the property, they discover that it is more than they can handle. For those without significant experience in real estate and property management, but still see the opportunity to turn a profit, it may be best to leave it to the experts who have already learned from their own mistakes and choose to passively invest.