Adding passive income sources to your investments is a key way to grow your wealth.
While investing directly in real estate is a great way to diversify your portfolio, passive investments are key to growing your wealth further.
Two commonly compared options are real estate syndication vs. REIT. Understanding the two and their differences is important when deciding how to invest your capital.
Real Estate Syndication Overview
A real estate syndication is a group of investors with one sponsor who invests in a property. The sponsor does all the work, including finding the property and handling all the necessary details, creating an LLC.
Investors interested in investing in the property purchase a percentage of the LLC. This makes investors part owners in the LLC and the property itself. Investors earn a proportionate amount of the profits earned based on their investment.
Pros
- Passive real estate investment
- Can work alongside real estate sponsors with extensive experience
- Opportunities to invest in different asset classes
- You can invest in real estate syndication in many ways, including cash or retirement accounts.
Cons
- A long-term investment without the chance of liquidity
- Strictly a passive investment, which means you can’t make decisions about the property
- May need to meet strict requirements set forth by the sponsor
REIT Overview
A real estate investment trust (REIT) is a company that invests in multiple real estate properties, but unlike real estate syndications, you don’t own a part of the property. Instead, investors become shareholders of the REIT.
Most REITs invest in income-producing properties like apartment complexes or commercial real estate.
REIT companies must adhere to much stricter requirements set forth by the Securities and Exchange Commission (SEC), since most REITs are listed on the public stock exchanges.
Pros
- The opportunity for immediate diversification, since most REITs invest in multiple…