REITs vs. Real Estate Syndications: What's the difference?

A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate properties.?

A Real Estate Syndication is a way for multiple investors to pool their financial resources together to invest in a real estate project. In a real estate syndication, there is typically a lead investor or sponsor who finds and manages the investment

What are the key differences?

Ease of Investment:?

• Most REITs are listed on major stock exchanges, making them easily accessible to investors.
• Real estate syndications are limited to accredited investors and require more time, effort, and access to specialized knowledge and connections to invest.

Capital Requirements:?

• REITs have a low monetary barrier to entry, as shares can be purchased on the public exchange for just a few dollars.?
• Real estate syndications typically require a higher minimum investment, often starting at $50,000 or more.?

Liquidity:?

• Investing in a REIT provides investors with the benefit of liquidity, as they can buy or sell shares at any time.?
• Real estate syndications outline a defined holding period for the asset, which can be five years or more. During this period, investors' funds are locked in and cannot be easily accessed or sold.?

Tax Treatment

• When investing in a REIT, depreciation benefits are factored in before dividend payouts, and there are no additional tax breaks available. Dividends are taxed as ordinary income, which can result in a higher tax bill for investors.
• Syndications allow investors to write off the depreciated value of an asset over time, even when the value of the asset is increasing, often resulting in paper losses that can offset other passive income and reduce their overall tax liability.

Historical Performance:?

• Over the last forty years, exchange-traded U.S. equity REITs have shown an average total return of 12.87% per year. If an investor were to invest $100,000 in a REIT, they could expect to earn approximately $12,870 per year in dividends.
• Real estate syndications have the potential to offer an average annual return of up to 20% or more between the cash flow and profits from the sale of the asset. A $100,000 syndication deal with a 5-year hold period and a 20% average annual return could generate $20,000 per year for 5 years, or $100,000 overall.

There is no universal investment that suits everyone. If you possess a smaller amount of capital and are hesitant to commit your money to an investment, you might want to examine REITs more closely. However, if you have a larger sum of money at your disposal, seek direct ownership, and are intrigued by the numerous tax benefits, and potential for a higher return, a real estate syndication may be the perfect fit for you.

Visit our website to learn more about real estate syndications and if they are right for you!?