REITs and Syndications – What’s the Difference?

Real estate is an attractive investment option, and two of its most popular alternatives are real estate syndications and Real Estate Investment Trusts (REITs).  Each investment option comes with distinct risks and rewards. It is crucial to understand the difference between them before selecting the right one to fit your investment portfolio.

Real Estate Syndications

Real Estate Syndication involves multiple investors pooling their capital to buy and manage large projects that are typically beyond the reach of individual investors. This includes offices, apartments, retail centers, and development projects. One advantage of real estate syndication is that it offers an opportunity for investors to diversify their investment portfolio. Unlike investing in a single property, real estate syndication provides investors with the chance to invest in multiple properties. 

Additionally, syndications allows investors to earn passive income without taking an active role in the management of the property. The operator, who is also referred to as the general partner, is responsible for managing the investment, ensuring that the objectives are met, and profits are maximized. On the other hand, investors, known as limited partners, reap the benefits of passive income without having to take an active role in managing the property. Ultimately, real estate syndication offers investors an attractive investment opportunity to create a diversified portfolio while earning passive income.

Impressive Returns with Syndications

Real estate syndication offers impressive returns compared to other investments. The typical deal structure includes 8%-10% cash-on-cash and an expected profit of 45%-60+%. These hypothetical examples show the potential for lucrative returns in a stable asset like real estate. Syndication is a viable and easy way to diversify your portfolio and generate passive income.

Here’s another example of how investing in real estate syndication can be lucrative. Leaving $200,000 in a bank account for five years would only yield $10,000 in interest. Investing in stocks could potentially earn you $100,000, but still falls short of the theoretical returns for real estate syndication. Even REITs, which many consider as an alternative to syndications, only average between 11.1% and 11.9% returns. Simply put, it’s hard to find a passive investment that can double your money in five years, apart from very speculative options like crypto.

Real Estate Investment Trusts (REITs)

REITs, on the other hand, are companies that own, operate, or finance income-producing real estate such as hotels, apartments, and shopping centers.  REITs have several advantages for investors. One such advantage is the ability to invest in real estate without the significant capital required for traditional real estate investing. REITs are publicly traded on the stock market, providing investors with an easy way to diversify their portfolio. Investing in a REIT can also offer benefits such as professional management and more liquidity compared to traditional real estate investments. These advantages make REITs a compelling investment option for those looking to add real estate to their portfolio.

REITs and Syndications – which is Better? It Depends on Your Goals.

If you’re looking to invest in long-term passive income streams without being directly involved in the decision-making process of a project, then REITs are your top pick. They require less commitment from shareholders while still offering exposure to various markets globally through their diversified portfolio holdings. However, if you’re looking for higher returns and the potential for passive income, real estate syndication are a better fit. Its structure allows direct access to specific property decision-making, potentially yielding higher ROI.

Understanding how each investment vehicle functions helps you decide which one is best suited for your real estate investment needs. Whether you choose a Syndication or a REIT, so be sure to do your research before making any decision.

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