Differences between multifamily and REIT investing

Syndication: A real estate syndication is a group of investors pooling their resources to collectively purchase a property. Typically, one investor acts as the sponsor or general partner, while the other investors are limited partners. The sponsor is responsible for managing the property and making decisions on behalf of the group. Questions? Email [email protected].

A REIT is a company that owns and operates income-generating real estate properties. It is structured as a publicly traded company and is required to distribute a significant portion of its earnings as dividends to shareholders. Investors can buy shares of a REIT through a stock exchange.

Tax Benefits:

Syndication: Syndications offer several tax benefits, including the ability to offset passive income with passive losses due to depreciation of the asset. This can lead to significant tax savings for investors.

REIT: REITs typically pay out 90% of generated income in dividends to shareholders, which means they do not pay corporate taxes. The taxes become the responsibility of the shareholders and can come in the form of ordinary income (as dividends are taxed), capital gains (similar to stocks), return of capital, or a combination of the three.

Diversification:
Syndication: Syndicates typically fund a single acquisition like a retail office building, a warehouse, or an apartment complex. This means your investment and the associated risks are embedded and concentrated within a single asset and subject to greater risk.
REIT: REITs invest in multiple assets within a specific sector, which provides immediate diversification. Diversification is a key component to building a well-positioned and thoughtful investment portfolio.

Liquidity:
Syndication: Real estate syndications have significant barriers to entry compared to REITs. Most real estate syndications require investors to qualify as accredited investors, which imposes a minimum income requirement of $200,000 or a net worth of at least $1,000,000, not including your main residence. Additionally, real estate syndicates have high minimum investments, often starting around $50,000.
REIT: Investing in a REIT is more accessible as you can buy shares through a stock exchange with a smaller amount of capital. However, the liquidity of your investment depends on the trading volume of the REIT's shares.
Control and Involvement:
Syndication: As a limited partner in a real estate syndication, you have limited control over the property and its management. The sponsor makes the decisions on behalf of the group, but you can still benefit from the expertise of the sponsor and their team.
REIT: Investing in a REIT is similar to investing in any other publicly traded company. You have little control over the day-to-day operations and decisions of the company. However, you can benefit from the expertise of the REIT's management team.

In conclusion, both real estate syndications and REITs offer unique benefits and drawbacks. The best option for you depends on your investment goals, risk tolerance, and preferences for control and involvement.