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How Do They Stack Up? REITs vs Syndication

How Do They Stack Up? REITs vs Syndication

You may have heard about REITs (Real Estate Investments Trusts) in the news during the 2008 financial crisis or in the more recent market crash that occurred when the Coronavirus hit the US in March 2020. What you probably didn’t hear about during those events is what happened to syndications. This is because real estate syndications are less widely known and are private investments.

If you have been thinking about investing in real estate or possibly expanding your investment portfolio this question may have been on your mind; what is the better passive investment between REITs and Real Estate Syndications?

REITs originated in the 1960s in the US and have gained popularity amongst investors over the last few decades and are a more common household name but what exactly is a REIT?

What is a REIT?

A REIT is an entity that invests in several different real estate assets based on the mandate of that REIT. Someone that invests in a REIT is effectively investing in the company that invests in this portfolio of assets in a similar manner that an investor invests in a basket of stocks when they buy an Exchange Traded Fund/Mutual Fund. A REIT is like a mutual fund that has real estate.

What is a Syndication?

Syndications, on the other hand, involve numerous investors pooling cash together for the direct purchase and investment in real estate using an LLC (limited liability company) to purchase that property. In this LLC structure each investor is a partner and owns a share of the LLC. Syndications have only started to get more attention recently due to the advent of equity crowdfunding with the 2012 JOBS act that allowed for equity crowdfunding. Crowdfunding is now taking something that was previously private and making it a more house hold concept.