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Real Estate Syndication vs REIT: Which One Is Better?

The real estate market has been on the rise for a few years now. It is no surprise that there are many different ways to invest in real estate. One of the more popular methods of investing is through real estate syndication. If you have never heard of this method, don’t worry, we’ll break it down for you!

In this article, we will be going over what real estate syndication is and why it may be better than REITs.

What is real estate syndication?

Real estate syndication is when a real estate investor pools their money with other individuals in order to purchase real estate. You can use the money you’ve worked hard for to invest in this very lucrative market and hopefully make some good returns on your investment!

How does real estate syndication work?

When it comes to real estate syndications there are two types: passive and active syndications.

Passive real estate syndication

With passive real estate syndication, the investor is not involved in the day-to-day operations of the property. The property is managed by a professional management company that takes care of everything for you.

This can be a great option if you want to get involved but don’t have the time. You will still be responsible for taxes and any real estate-related fees, so keep that in mind when deciding if this is the right investment method for you.

Active real estate syndication

In active real estate syndication, on the other hand, there are more responsibilities placed on the investor who purchases a share of a real estate syndication. You will be involved in the real estate company that is managing your real estate investment, which means you’ll have more of a say on how it’s run and managed.

This can be great if you’re looking to get more hands-on with your real estate investment or learn some valuable skills while building equity at the same time.

coins stacked on top of each other next to a miniature wooden house

What is REIT?

REITs, or real estate investment trusts, are another popular method of investing in real estate. A REIT is a company that owns and manages real estate assets. They may own office buildings, apartments, shopping centers, and more – all with the goal to increase their stock value for shareholders. It’s not uncommon for real estate companies like real estate syndication to also be a real estate REIT.

When it comes to real estate investment, there are pros and cons of each method that you should consider before deciding which one is right for you.

What Type of Real Estate does a Real Estate Investment Trust Own?

The real estate that a REIT typically owns can be broken down into three categories:

  • Commercial real estate: This is property used for business purposes, such as an office building or warehouse.
  • Mixed-use real estate: Property with both residential and commercial tenants.
  • Residential real estate: Homes and apartments.

By investing in a real estate investment trust you are able to get into real estate that is not typically available on the market. These real estate properties can also be bought and sold very quickly, which means real estate investors don’t have to wait around for the perfect deal. There may even be opportunities for new buyers if there’s an opportunity to take the real estate property off the hands of the REIT.

The biggest differences between REITs and Real Estate Syndication

The main difference between real estate syndication and REITs is that real estate syndications are slightly better. With real estate syndication, you have a real person to talk to who is invested in the property just like you are. This can be great for networking opportunities or if you ever have any questions about the property.

REITs, on the other hand, can be a little more difficult to deal with. Because they are publicly traded companies, their main goal is to increase their stock value and not necessarily focus on real estate investments. This means that you may not always get the best customer service when dealing with a REIT.

Tax Depreciation

One of the best benefits of real estate syndication is tax depreciation. This deduction allows you to write off a portion of your investment each year on your taxes, which can be a huge saving.

REITs also offer some tax advantages, but they typically aren’t as good as those offered through real estate syndication.

Volatility

Another difference between real estate syndication and REITs is the amount of volatility. Because real estate syndications are typically smaller companies, they tend to be less volatile than REITs. This means that your investment is less likely to go up and down in value as quickly as it would with a REIT.

cartoon hand holding a small cartoon house on blue background

Fees

When it comes to real estate syndication vs. REITs, real estate syndications typically have lower fees that can help your investment grow faster over time. Real estate syndications charge a flat fee for managing the property while building equity and may also add on additional charges if you’d like them to manage any tenants or maintenance issues. This can help you save money and even earn more than if you were to invest in real estate syndication.

REITs typically charge a fee based on your investment, but it can be difficult to determine exactly how much they will cost until the end of each year (and sometimes at that point there may not be any fees). This means that real estate syndication can be a more affordable option when it comes to real estate investment.

Liquidity

One of the biggest benefits of real estate syndication is that it offers liquidity. This means you are able to sell your shares in the real estate company at any time for a fair price.

REITs do not typically offer liquidity, which can be a huge disadvantage if you need to get your money out of the investment quickly.

Higher Minimum Investments

With real estate syndication, you typically need to invest a minimum of $50,000. This may be the case for REITs as well, but it’s not something that is guaranteed if you choose real estate investment trusts.

Cash Flow

The real estate syndication offers cash flow that you can count on each month, even if the real estate market is down.

REITs offer a lower amount of guaranteed monthly cash flow and typically don’t make as much money throughout each year as real estate syndications do. This means your investment may take longer to grow with REITs.

Diversification

One of the best things about real estate syndication is that it offers great diversification. With a real estate syndication, you are able to invest in multiple properties all at once, which can help spread your risk out.

REITs typically only offer investors the option to buy shares in their company, which may not be as diverse as real estate syndication.

Legal Documents

The legal documents for real estate syndication are typically much simpler than those for a REIT. This means that it’s easier to understand what you’re getting into when you invest in a real estate syndication.

The real estate syndication offers a better return on investment and typically has lower fees. The legal documents for real estate syndications are also simpler, which can make it easier to understand what you’re getting into before making an investment.

REITs offer the chance to invest in real estate without having to be directly involved with owning property. This can be a good option if you’re not interested in being a landlord or taking care of tenants. However, real estate syndication offers less liquidity and typically has a higher minimum investment than REITs.

miniature wooden house with house keys and a contract next to it

Which one should I invest in?

Both real estate syndication and REITs can be great investment options, but it’s important to understand the differences before you decide which is right for you. If you’re looking for a more affordable option with good liquidity without having to be a landlord real estate syndication may be a better choice.

On the other hand, if you’re looking for something that will offer you great diversification and don’t mind investing in real estate without liquidity, REITs may be your best bet. If you want to invest in real estate with less risk, real estate syndications might be the better choice.

REITs offer real estate investors a chance to invest in real estate without having to worry about owning property or having tenants.

If you’re looking for something that will diversify your real estate portfolio and don’t mind investing with less liquidity, real estate syndication might be right for you. Both real estate syndication and real estate investment trusts offer investors real estate opportunities, but they have a few key differences that might make one better for you.

Final Thoughts

Blog post conclusion paragraph: To summarize, real estate syndications are a great opportunity to invest in the booming real estate market.

When you join Holdfolio as an investor or owner, we will take care of everything for you – from finding and vetting properties, brokering deals with sellers and buyers, negotiating contracts, and managing property management issues. And because our team is experienced in all aspects of the business side of things like finance, accounting, and technology (not just marketing), we can offer greater peace of mind that your investment will be safe and profitable.

If this sounds like something you’re interested in investing in then contact us today to learn more about how your money would work for you at Holdfolio!

FAQs

A real estate investment trust, or REIT, is a company that owns, operates, or finances income-producing real estate. A real estate syndication is when a group of investors pools their money together to buy and own real estate.

An equity real estate investment trust (REIT) is a company that owns, operates, or finances income-producing real estate. A real estate syndication is when a group of investors pools their money together to buy and own real estate.

One reason people may say that REITs are a bad idea is that they offer less liquidity than syndication. With real estate investment trusts, you can’t get your money out as quickly as you could with a real estate syndication.

Yes, you can invest in a REIT without owning property. A real estate investment trust is a company that owns, operates, or finances income-producing real estate.
No, you don’t need to be a landlord to invest in syndication. In fact, many people who invest in real estate syndications don’t own real estate at all.

No, they do not. The returns can vary depending on many factors, but typically real estate syndication offers a higher ROI than REITs because it has fewer fees associated with it.

No, real estate investment trusts and REITs are available to both accredited and non-accredited investors. Depending on the real estate syndicator you choose, however, there may be certain requirements like a net worth of $200K or more along with liquid assets over $100K that you must meet in order to invest.

There are typically fewer fees associated with real estate syndication than there are with REITs. This is because real estate syndications are not as regulated, so the costs are passed on to the investors.

That really depends on your needs and what you’re looking for. Syndications can be a better option if you’re not interested in being a landlord and taking care of tenants or real estate, while real estate investment trusts may be more ideal if you want something that will diversify your real estate portfolio and offer good liquidity.

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TJ Lokboj

TJ Lokboj is an entrepreneur with a passion for adding value to the real estate investing industry through adopting digital transformation. Some of TJs companies have been featured in Yahoo Finance, Morningstar, Benzinga, and many other publications.

TJ is the managing partner of Holdfolio, a real estate investment firm that leverages a premier crowdfunding platform.

He is also a member of the Forbes real estate council and co-founded SyndicationPro, which is the #1 syndication management SaaS solution in the market today.

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