Many investors who are not familiar with apartment syndications often wonder what the difference is between investing in a syndication deal versus a REIT. On the surface, the appear to have many similarities such as the asset class which provides the returns and the pooling of money from numerous investors. However, there are some important differences between these two investments of which every investor should be aware.
When you invest in a REIT, you are pooling your money with other investors to purchase a piece or share of a company. While the company itself is invested in specific real estate properties you as the investor own a share of the company and not of the actual real estate. This differs from an apartment syndication which allows you to be a direct owner of a certain property. There are a few reasons this is important but perhaps the most notable is the tax advantages that come with owning real estate. One of the strongest arguments for real estate as an investment choice is the lucrative tax advantages that come with it. Directly owning a property through syndication allows you to take advantage of these opportunities that you do not have access to in a REIT investment. Additionally, apartment syndications usually have much higher returns than investment in a REIT. This higher rate of return coupled with years of reinvestment demonstrates why direct ownership of real estate is such a powerful wealth building tool.
Other differences between a REIT investment and an apartment syndication is the minimum investment amount and the liquidity of that investment. While syndications typically offer the tax advantages above and stronger returns, they also come with high minimum investing requirements and the lack of ability to pull one’s money out in a short time span.
One final difference between investing in a syndication as opposed to a REIT is the opportunity to relationship with the sponsor of a given multifamily deal. Most investors usually do not have a relationship or direct access to their REIT management team which results in the implementation of strategies that not always align with the investor’s financial goals. Syndications sponsors on the other hand, typically know their limited partners well and prioritize the interest of the passive investor when developing and executing the business plan.
There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please check out our free ebook "Achieving Financial Freedom Through Multifamily Investing."