As most people embark on their real estate journey, it is likely that REITs will come up in your research, if you didn’t know about them previously. It is often a discussion on how they are any different than real estate syndications since they sound so similar in concept. If you are not familiar, a REIT (Real Estate Investment Trust) is a company that invests in commercial real estate. Just reading that, it sounds the same as a real estate syndication but there are several ways these differ. This article will cover the differences so that you can decide which works best with your investment goals.

Assets Invested In

The way a REIT operates is they hold several different properties across different markets. When you invest in a REIT, you don’t have the choice in which property you invest in or which market. You invest your money in the REIT and then they go invest in a property of their choosing. In a real estate syndication, you know which property you are investing in ahead of time. You invest on a deal by deal basis so you can make decisions on market, property, and business plan.

Ownership

When you invest in a REIT your ownership interest is similar to that of a stock. You own a part of the company that buys the real estate. So you do not have ownership in the actual property. When you invest in a syndication, you are an owner in that specific property you choose to invest in. Therefore, you get to capitalize on all the tax benefits of owning the real estate. 

Investment Minimum

When you invest in a REIT, the minimum required to invest is much lower than a syndication. Typical syndications will require a minimum of $50,000 (this is average but it could be lower or higher depending on the sponsor and the deal). Whereas you can invest in a REIT for as little as $1,000. This is a very large difference in the minimum investment requirement so should definitely be a consideration when looking at both options.

Barrier to Entry

When you invest in a REIT, it is pretty easy to find opportunities. All you really have to do is google REITs and several companies will pop up. It’s just a matter of doing your research on which company you want to work with. However, with a syndication, you must know the sponsor personally and have a relationship with them in order to invest if you are not accredited. This means you’ll need to do a lot more up front research and networking in order to find opportunities. If you are accredited, you don’t need a relationship with the sponsor before investing, however, it is recommended that you vet that sponsor thoroughly before investing with them.

Conclusion

There are many differences to consider when it comes to deciding between a REIT and a syndication. It is important to keep in mind these are not the same strategies even though they are both types of real estate investments so it is not expected that they will yield the same result. The one you choose will depend on your current situation as well as your long-term investment goals.