Wealth Creation vs Active Income in Real Estate Investing
When we talk about building wealth through real estate, we’re really talking about two different categories of real estate investing strategies: the wealth creation strategies and the active income strategies. In this article, I want to elaborate a bit more on what is the difference between these two categories and which category you should focus on as a beginner investor.
Wealth Creation vs Active Income
Most simply put, wealth creation strategies include those strategies that allow you to build wealth with real estate over a long period of time. Through these strategies, investors mainly rely on the appreciation of their properties compounding over time, which results in significant wealth. As you probably already know, the longer you hold onto a property, the more wealth you can accumulate from it.
Active income, on the other hand, comes from investing strategies that make you short-term ROIs. These strategies allow you to make some quick money but they’re not in any way high yield investments. This type of active income requires you to be more present and to put more time into the investment and the strategy behind it. Although you’re making money faster, you’re not necessarily making as much of it as you could be if you were to focus on wealth creation strategies.
Which Investing Strategies Category is Best for You?
You’re probably wondering whether you should focus on wealth creation or active income as you’re starting out in real estate? Generally, if you’re planning to quit your day job and live completely off of your investment portfolio, then wealth creation strategies are the way to go. However, to get there, you might have to rely on some active income first. Hence, a combination of both types of strategies could be a good way to set you up for financial freedom in the future.
However, one thing we must address is that active income investing strategies will hardly make you wealthy. Why? Because they require your time. As any other person in the world, you only have 24 hours in a day. There’s only so much you can do with a limited amount of time. Since active income strategies require you to exchange your time and effort for money, you can only make a limited amount of wealth this way.
On the other hand, wealth creation strategies are those that set up your money to make more money for you. These are the kinds of strategies you want to go for if you’re planning to retire ahead of time. I usually focus on teaching my students how to become wealthy through these types of real estate investing strategies. However, there’s nothing wrong with active income in the beginning.