Degree of Control

The long term investor category can be further subdivided into two more categories. These categories are
distinguished based on the degree of control they exert on the property in question.

 Active Investors: Some long term investors prefer to manage the property themselves. They are
the ones who conduct the repairs, find the tenants and rent out their properties. Also, they may be
actively involved in the property management process and may visit the property several times to
ensure that no damage has been carried out by the tenants. Since they actively participate in the
investing process, they are called active investors.
 Passive Investors: There are other long term investors which have the ownership of the property.
However, they do not take interest in managing its day to day affairs. To do so, they either hire
employees or they end up hiring professional real estate management firms. Since they play no role
in maintaining the property, they are called passive investors. They just provide the cash flow for
financing the property and make very few (if any) decisions regarding its management.

Legal Entity
Lastly, the type of real estate investors can also be distinguished based on the type of legal entity they are.
Legal entity is important because it determines the amount of liability that a person has.

 Individual Investors: Most of the investors in the real estate market are individual investors.
Individual investors have an unlimited liability. This means that if they undertake a mortgage on one
house and default on it, their other assets can be liquidated to make good the loss.
 Institutional Investors: There are many institutional investors in the real estate market as well.
These institutions usually finance themselves by issuing long term bonds in the bond markets. Since
these bonds have a secondary market, they are very liquid and provide the investors with the ability
to enter and exit the real estate market without any major hassles. While, in terms of number,
individual real estate investors may outnumber the institutional investors, in terms of scale or
volume, they are no match for the big corporations who invest billions of dollars in real estate
investments.

Real estate market, like the other markets, is therefore complicated. It has various investor groups, who
have different motives and based on the competition and co-operation between them, the real estate
prices are set.