Posted almost 5 years ago

Why Invest in Multifamily Syndications vs REITs?

Almost everyone is familiar with Real Estate Investment Trusts, or REITs. As I speak to potential investors, many confuse a private syndication opportunity with a REIT. That is totally understandable because Wall Street spends millions of dollars promoting REITs, and just like any mutual fund you can certainly make money, but a REIT is a very different investment than a private syndication opportunity. Obviously you should evaluate every investment on its own merits, but I'll share my personal experience. 

In a nutshell, when you participate in a multifamily syndication opportunity, you are buying a real, solid asset as opposed to investing in a fund that buys real estate. I like that as opposed to a fund because of:

Real estate syndication is simply getting a group of people together to buy a real estate asset that most could not afford to purchase individually. Investors can see it, touch it, and feel it. They own it.

Ongoing Passive Income
Because the IRS allows depreciation acceleration on real estate, the income is typically tax-deferred. You also don't have to wait until the asset is sold to collect. It's an annuity backed up by hard assets.

Typically Much Less Risk
Syndicate investors know exactly what they are getting, and are able to evaluate the investment on its own merits. In a REIT, Investors only own a share of the total fund and not a direct share of the underlying property. If you don’t know exactly which properties you are investing in, it’s hard to complete a thorough risk assessment.

Fees Are Less, As Well As Transparent
The fee structure of a REIT is generally based on the AUM, (assets under management), as opposed to the operating income improvement of the asset. Most REITs carry large overheads and many middlemen who often facilitate the sale and marketing from financial planners, consultants, bankers, and listing services. Someone pays for all of that.

1031 Exchanges
As you know, I'm all about keeping more, and that means paying the government less. 1031 exchanges enable tax deferral to continue, just like any other real estate investment. On the other hand, most REIT’s are treated solely as dividend income like a stock or mutual fund, because ultimately, that's what a REIT is.

Disclaimer: I am NOT a financial advisor, nor do I play one on TV. I’m only sharing my personal experience, and your mileage may vary. If I’ve said something that you think is not accurate, let’s have a conversation about it. I know a lot, but not everything. Always learning…

Comments (2)

  1. Solid article and good overview! 

    1. Thank you Andrew!