7 Big Differences Between Private Real Estate Syndications vs. REITs
Demystifying different real estate opportunities brings you one step closer to realizing your dream of financial freedom through real estate.
Due to ingenuity and technological growth, there are more real estate investment options, from equity crowdfunding to micro-flipping, than ever. Unfortunately, while this choice brings diverse investment opportunities, it can also confuse and overwhelm potential investors.
This blog discusses the differences between two leading investment options, REIT and private real estate syndications, and why investors looking for more out of their investments should consider a private investment option.
1. Number of Assets
Private real estate investments allow investors to invest in individual commercial properties such as multi-tenant and multi-family. This approach enables asset syndicators to manage the asset, make value-add investments, and exercise more outstanding care and support over the asset and tenants within. This also allows single property managers to build long-standing relationships with tenants and investors, leading to more positive outcomes.
In comparison, REITs will have hundreds and sometimes thousands of properties in their real estate portfolio as investors are not investing in the properties themselves but in the trust or business.
2. Ownership Structure
Investors in real estate deals invest in the property as a limited partner providing them with equity and access to the benefits of appreciation in a direct way.
Since a REIT is a publicly traded company that owns the finance-generating asset, investors own shares in the trust as they do not have access to direct equity in the buildings themselves.
3. Ease of Access to the Investment and Investment Minimums
As REITs are publicly traded, any person investing in a REIT can start with the price of a single share and a trading account and continues to buy and sell during regular trading hours.
Some SEC guidelines regulating private syndications impact the access and investment amount. Due to this, investors in a private deal usually must be accredited investors who meet some financial, educational, or professional benchmark. In addition, many private investments will require an initial investment amount of $50,000.
In contrast, when investing with Kenwood Management, our minimum buy-in is $25,000, and we do not need investors to be accredited.
4. Amount of Liquidity
Due to the long-term commitment and structure, a private real estate deal in a multi-tenant property is an illiquid investment as your money is tied up in the asset's equity. This means it will be difficult to withdraw your cash once the investment has been made before the end of the deal term.
As REITs are publicly traded, investors can sell their shares at any stage during market hours.
5. Tax Benefits
Tax benefits are one of the big reasons investors choose to enter the property market.
Generally, income accrued from a REIT will be considered taxable and taxed at the investors' marginal tax rate. However, depending on the structure and timing of the sale of properties within the REIT, some income may be considered a capital loss or subject to tax-deferred distributions.
Private real estate deals are often structured to provide maximum tax benefits to investors within the agreement. At the end of the year, we guide investors with a K-1 form that outlines depreciation offsets available to our investors.
REIT returns come from dividend payments, as REITS must distribute 90% of their taxable income as dividend payments to investors. While returns can be attractive, the returns are subject to market conditions and may reflect not only the real estate market but also financial markets.
The returns in private syndication are tied to the underlying property value and multi-tenant real estate, the income generated from tenants, and the embedded lease agreements.
Additionally, one of the most substantial aspects of private syndication is the power of appreciation. Appreciation is a potent vehicle for wealth generation and rewards patient investors.
7. Social Impact
As discussed, REITs are publicly listed companies that purchase income-producing real estate assets across various industries. This means that they focus on the bottom line and figures.
While not a feature of all private real estate syndications, at Kenwood Management, we've found that maintaining a mutually beneficial by offering superior property management services has led to longer-term leases and happier tenants. Therefore, one of the critical benefits of a private real estate deal is the personal, fair, and transparent relationships built out of this structure.
Not All Private Real Estate Syndications Are The Same
There is significant variation in the types of real estate investment deals available, and so is the variation in the different investment groups and private syndicators.
Due to our underlying philosophy of reciprocity, experience, and understanding of the local markets we invest in, Kenwood Management offers a one-of-a-kind investment experience for investors serious about accessing both dividends and appreciation of the asset over time. Reach out to the team to discover why our private syndications consistently beat all forecasting and create long-lasting relationships with happy tenants.
Ready to learn more about investing in multi-tenant properties? Download our free guide, "Why Multi-Tenant Commercial Real Estate Is a Good Investment."