In real estate investment, investors explore varied avenues to optimize returns and bolster their portfolios. Two prominent avenues are real estate syndication and Real Estate Investment Trusts (REITs). These both present compelling opportunities for wealth accumulation and portfolio diversification. Deciding between real estate syndication and REIT investing has pros and cons to consider for each option.
Defining Syndication and Real Estate Investment Trusts
Let’s establish a foundational understanding of real estate syndication and REITs. Real estate syndication orchestrates collaborative efforts among investors to acquire and manage real estate properties, fostering direct ownership and active involvement in asset management. REITs are companies that own, finance, or manage real estate properties. Investors can own a part of these properties by buying shares in the trust.
To understand the differences between real estate syndication and REITs, it’s important to consider various aspects. Below is an overview of these investment types, which will help you decide which option is best suited to your needs.
Barriers to Entry
Since they are publicly traded, any individual investor can easily buy a small number of shares in REITs. Real estate syndications are only available to accredited investors. Additionally, most syndication sponsors set a minimum investment threshold. Although this amount is still much less than the cost of buying an entire comparable asset, it means that not every interested investor will qualify.
Ownership Structure and Cash Flow
Real estate syndication empowers investors with direct ownership of real estate properties, facilitating personalized control over cash flow and operational decisions. REIT investors get money from dividends based on real estate holdings, providing passive income from the trust’s cash flow.
Types of REITs and Real Estate Property
REITs encompass diverse property types, including residential, commercial, industrial, and healthcare real estate. Investors can tailor their portfolio exposure by selecting REITs aligned with their risk preferences and investment objectives. Conversely, real estate syndication often focuses on specific property types or niche markets, offering targeted investment opportunities tailored to investor preferences.
Investment Comparison and Net Worth
When comparing real estate syndication and REITs, investors evaluate factors such as investment minimums, liquidity, and potential returns. Real estate syndication may require higher investment thresholds, catering primarily to accredited investors with substantial net worth. REITs are available to investors of all income levels, including those with different amounts of money.
Liquidity
Investors in a REIT can buy and sell their shares anytime like any other stock in the market. This provides greater liquidity than a real estate syndication where you might have to hold onto the asset for a specific period according to your investment agreement.
Returns of REITs and Real Estate Syndications
When examining the general returns of REITs vs Real Estate Syndications, it’s crucial to consider various factors. Historically, REITs have often presented less-attractive risk-adjusted returns compared to investing in private multifamily real estate. Additionally, a significant portion of REIT returns is derived from appreciation rather than income, which can affect the overall investment strategy. REITs typically offer investors the chance to access a diversified portfolio of real estate assets through publicly traded shares, providing liquidity and passive income streams. Conversely, Real Estate Syndications often focus on specific properties or projects, allowing for more direct involvement and potentially higher returns. While Syndications offer the potential for greater control and customization, they often demand a more hands-on approach from investors and may require longer holding periods to realize returns.
Real Estate Portfolio Diversification
Real estate syndication enables investors to build a diversified portfolio by selectively investing in distinct properties or projects across geographical regions or asset classes. Conversely, REITs provide instant diversification through exposure to a portfolio of real estate assets spanning multiple sectors and geographic markets, mitigating individual property risks. When working with a broader portfolio it is crucial that it is efficiently managed to maximize your returns and minimize risks. With Groundbreaking Real Estate on your side, you can reap the benefits of real estate investments without the work.
REITs and real estate syndications each have their unique advantages for any investor. Investors can choose between owning real estate directly or investing in REITs for passive income and diversification. You should consider your financial goals and risk tolerance when deciding which option is best for them. Groundbreaking Real Estate can help you use your knowledge to start building wealth and optimizing your investment portfolio. Since 2012 Groundbreaking Real Estate has partnered with other investors, to acquire over $250m of real estate transactions. Are you ready to harness the power of real estate investment that will help you reach your full financial aspirations? Contact us today to begin diversifying your portfolio with real estate!