Real Estate Syndication Vs. REIT

Real Estate Syndication Vs. REIT

Whether you are looking to invest passively in the real estate sector, or to purchase larger projects you could not afford on your own, real estate syndication and real estate investment trusts (REITs) are options you might want to consider.

In both types of investments, the syndication sponsor or REIT is responsible for all sourcing, due diligence, and property management. However, it is vital to remember that REITs and real estate syndications are two different things.

Listed below are some of the differences between each investment type, so you can choose which option may suit your needs best.

What Are Real Estate Syndications?

A real estate syndicate is a private venture that gathers investor funds for a significant real estate purchase. Syndications are led by one or more sponsors—who select the property, plan the project, raise funds, and execute the necessary strategies.

Typically, the sponsor forms a legal entity, such as a limited liability company. Then the sponsor finds investors, also called limited partners or passive investors, for the project. In this case, the investor owns a proportionate share of the LLC, and, in turn, owns a percentage of the profits.

What Are REITs?

Syndications seem similar to REITs, however, the latter invest in real estate and need to comply with a number of Securities and Exchange Commission (SEC) requirements.

Shares in a REIT are purchased by investors, and so they own a percentage of the company instead of the property. Often traded on public exchanges, REITs provide dividend income to their shareholders on a monthly basis.

A Comparison of REITs and Syndication: Key Differences

The main difference between a real estate syndication and REIT is that real estate syndications perform slightly better. By joining a real estate syndicate, you have a real person to talk to who is also invested in the property. For networking purposes or if you want to learn more about a property, they can be an invaluable resource.

As for REITs, they can be more challenging to deal with. Since they are publicly traded companies, their main focus is increasing their stock value rather than investing in real estate. Because of this, dealing with a REIT may not always be the best experience for you.

Other primary distinctions are as follows:

Tax Depreciation

Property syndication offers tax benefits as one of its many advantages. By writing off a portion of your investment each year through depreciation, you can save money on your taxes.

Tax advantages are also available through REITs, but they tend to be less favorable than those from real estate syndication.

Investment Volatility

A second difference between real estate syndication and REITs is their level of volatility. The volatility of real estate syndications is lower than that of REITs since they are typically smaller companies. This means syndicators are less likely to see a rapid rise and fall in your investment as quickly as you would with a REIT.

Minimum Fees

The benefit of real estate syndications over REITs is that they tend to have lower fees, which can result in faster growth over time.

A real estate syndicate charges a flat fee for managing a property and building equity and may also require additional fees for handling tenants or maintenance issues. By doing this, you can save money and earn more than you would if you invested in REITs.

Most REITs charge a fee based on your investment, but it can be challenging to determine precisely how much you will pay until the end of the year, at which point there may not be enough money to cover these fees. Thus, investing in real estate via syndication is a more affordable option.

Liquidity

There is a great deal of liquidity offered by real estate syndication. If you want to sell your shares in the real estate company at a reasonable price, you have the option to do so at any time.

Illiquidity is a significant issue with REITs, which makes them unsuitable for investors who need to get their money out quickly.

Income Stream

Even if the market is slow, how much real estate syndicators make will be unaffected and is guaranteed to have a steady cash flow every month.

REITs, on the other hand, offer less guaranteed cash flow per month and usually make fewer profits annually than syndications. You may have to wait longer to see the return on your investment with REITs because of this.

Real Estate Syndication vs REIT: Comparing Risk and Reward

Real estate syndication and real estate investment trusts (REITs) are two prevalent methods to invest in real estate, with risk and return profiles that differ. Real estate syndication is the pooling of multiple investors’ funds for the acquisition and management of a real estate property. This form of investment typically offers higher prospective returns than real estate investment trusts (REITs), but also carries greater risk due to its more hands-on nature.

REITs, on the other hand, are publicly traded entities that own and administer a portfolio of real estate properties that generate income. This form of investment offers lower potential returns than syndications, but the passive nature of the investment reduces the associated risk. Additionally, REITs offer greater liquidity and diversification, making them a better choice for investors seeking to distribute their risk across multiple properties and markets.

Syndications or REITs: Which is Right for You?

Syndications in real estate are becoming increasingly popular and attractive as an investment vehicle. There is a wide selection of platforms available to begin investing, so you can choose one that suits you.

When it comes to real estate syndication, you get to choose which property you want to invest in. In this case, it is critical that you invest with someone who has a strong track record of success with their investment portfolio.

We at Saint Investment Group specialize in the acquisition, ownership, and management of property in growing markets nationwide. The experts at our firm can help you establish a solid foundation for passive real estate investing tailored to your specific needs.

To schedule a free consultation, get in touch with our team at info@saintinvestment.com or 949-881-7128 at Saint Investment Group today!

Frequently Asked Questions:

What is the main difference between real estate syndication and REITs?

Real estate syndication involves pooling resources from multiple investors to purchase and manage a real estate property, while REITs are publicly traded companies that own and manage a portfolio of income-producing real estate properties.

Which one offers higher returns, real estate syndication or REITs?

Real estate syndication typically offers higher potential returns than REITs, but also comes with higher risks due to the more hands-on nature of the investment.

Which one is more passive, real estate syndication or REITs?

As opposed to direct ownership, buyers in a REIT have less involvement in the day-to-day operations of the company that manages the buildings they own. On the other side, real estate syndication allows for greater input into investment and operational choices.

Which one offers better tax benefits, real estate syndication or REITs?

Both real estate syndication and REITs offer potential tax benefits, but the specific benefits will depend on individual circumstances and the structure of the investment.

Which one has a lower barrier to entry, real estate syndication or REITs?

REITs generally have a lower minimum investment amount and a more standardized investment structure, making them more accessible to a wider range of investors with varying capital. Real estate syndication typically requires a higher minimum investment amount and has a more customized investment structure, but may provide unique opportunities for investing in specific assets or investment opportunities.

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