Summary: Apartment syndication and REITs both have awesome benefits for investors – but what’s the difference?! Let’s learn all about these two investment strategies to find out which one aligns with your specific goals.
As you may or may not know already, we are total hype girls for apartment syndication. We love it, we live it, and we help others learn about it allll the time. 😍😍
Apartment syndication is what’s called a group investment – which offers unique opportunities to investors like less risk and less stress. (PS…we’ll talk allllll about group investments in a sec. 😏)
But you know what? Apartment syndication is not the ONLY group investment strategy available to you. Aaaand to make the best possible decision for your financial future, you simply must know all your options.
Enter: Real Estate Investment Trusts (REITs).
Sooo, what’s the difference between REITs and apartment syndication? Are they interchangeable? Is one better/worse than the other? 🤔
These are all valid questions. Buttt we can’t simply say that one is better than the other, because every investor is different. We want you to choose your best possible investment asset, and that means going a bit deeper into the similarities and differences of REITs and apartment syndication.
Let’s dive into the details so you can get the full picture, and answer the one question that matters most…
👉Which of these investment styles in right for YOU?
Ready to rock? Here’s what we’re covering today:
- What are group investments and why are they special?
- Let’s talk about REITs deets.
- The lowdown on apartment syndication.
- The 4 main differences between REITs and apartment syndication.
What are group investments and why are they special?
Before we dig into the main differences between REITs and apartment syndication, it’s important to know how they’re similar.
Why should you consider either of these types of investments?
Well, for starters, if you’re not into personally fixing a plumbing issue at your investment property at 2 AM – group investments miiiiight be your jam.
Investing through a syndicate or a REIT means you’re one of many investors in a group. You get to reap the benefits of your investment without having to manage the property directly. The time and energy commitment for group investments is WAY less than other real estate investments.
Helloooo, passive income. 🙌
If you want to invest money without being a landlord OR having to hire a landlord…group investments are the way to go. Aaaand if you’ve been around us for more than a second you know we’re ALL about helping you create those passive income streams.
You keep living your life while the money keeps streaming in. 😏
Both types of group real estate investments give you access to passive income deals, and a mostly hands-off investment approach. So, let’s take a closer look at REITs and syndication to see how they’re different.
The lowdown on apartment syndication.
Apartment syndication pools money together from many different investors to purchase apartment properties. It all goes through a sponsor or team (ahem…like us 👋) to handle all the planning, purchasing, and managing work.
You know, all the day-to-day stuff that you don’t want to deal with.
The sponsors organize the project and invite investors to get in on the passive income action. Behind the scenes, sponsors find and secure a property, create a business plan, manage the property, and keep investors apprised of any updates about their investment.
Now for the responsibilities of the investor (also called limited partner)…simply to invest and let the sponsors do their thing. How great is that?!
Noooo late-night plumbing involved here. 😉
Let’s talk about REITs: The deets.
A Real Estate Investment Trust (or REIT) is a company that owns and operates multiple income-producing properties. Like in syndication, investors pool money together to be able to invest in larger buildings that they may not otherwise have access to on their own.
The company is responsible for owning and managing the buildings, and the income is distributed quarterly to investors in the form of dividends.
The investments could be used to finance hotels, apartments, office buildings, warehouses, etc. Some companies stick with one type of building, while others use investor funds across multiple types.
Investing in a REIT is preeetty simple, since the minimum investment is usually low, and you don’t need to be accredited to get involved. Plus, crowdfunding platforms (like CrowdStreet) make it SUPER easy to get in on the action.
BUT there are several requirements for becoming a REIT in the first place. 👇
- Invest at least 75% of funds into real estate
- Must be managed by a board of trustees
- Have at least 100 shareholders
- Pay at least 90% of taxable income to shareholders
- Be taxable as a corporation
- No more than 50% of shares can be owned by 5 or fewer individuals
The 4 main differences between REITs and apartment syndication
Looking at REITs and apartment syndications side by side shows us some pretty big differences. Remember, one is not better than the other, but understanding your needs and goals will help you decide your best investment asset.
The first major difference is liquidity. If you’re wanting to play around with your investment (buy, sell, or pull-out money), REITs are the more liquid option out of the two.
Apartment syndication will keep your investment tied up for a certain amount of years – until the property is sold. In that time, invested money is used throughout the whole cycle of the property, and dividends are paid AFTER the final sale. Sooo, expect your money to be locked in for at least 2-5 years, depending on the syndication deal.
The other side to waiting a while for a return is this: apartment syndication tends to come back with a HIGHER return on investment. 😍 REITs offer more consistent income with regular payoffs, but the overall return is limited.
Remember how REITs have to pay investors at least 90% of the property income?
That means there’s notttt much leftover to reinvest in another property to create even more cash flow. It’s all about what you’re after…quick, consistent cash that reaches a limit, OR later, larger payoffs that continue to grow.
If you’re looking to add lots of diversity to your portfolio, REITs offer a good variety. 👌 One investment could be used on multiple properties and asset types. The other side is that you don’t have a ton of details about the individual properties.
With apartment syndication, you’re usually deciding to invest in one property with one business plan. Your syndicator will give you all the specifics for the property, and how they plan to generate income.
So, if you want to stay really in the know, syndication might be your jam.
Taxes are a biiiiig deal when it comes to investing. This is the time when we tell you to meticulously read the fine print for ANY investment deal.
While REITs have some nice benefits, they also require investors to pay quite a lot in taxes. The REIT company doesn’t pay corporate taxes (since 90% income must go to investors) so guess who is responsible?
Yepppp. Investors pay all the taxes. 😅
That’s all good if you’re expecting and prepared to pay taxes on your investment. BUT this is where apartment syndication reeeaaally shines.
When you invest in a syndication deal, you are considered a direct investor, and get to take part in the full depreciation of the property. By writing off the depreciation costs, it’s possible to end up paying $0 in taxes (IF depreciation is more than the cash flow produced). 🤩
PS…if you want to reduce your taxes big time, learn more about becoming a real estate professional here.
So, there you have it. For liquid investments and diversity, REITs can be beneficial. But to reap the higher rewards, have direct ownership, and get major tax benefits, apartment syndication is your better bet.
Whatever you choose, it’s always important to know your goals and do your research for each deal. We’ll keep giving you the resources to grow and build your own financial path…you just keep going after your dreams. ✨
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