What are the Differences between Syndication and REITs?
Real estate investment trusts (REITs) and Syndication are two ways for individuals to invest in real estate without managing physical properties. While REITs and Syndication are often confused as the same, they offer very different ways to invest in real estate.
What is a REIT?
A REIT works similarly to buying a stock or mutual fund in that investors purchase shares of a property. The corporation then pools the funds together to invest in a wide range of real estate assets such as apartment buildings, retail, office space, hotels, storage facilities, etc. Most REIT companies only focus on investing in one property type, such as hotels, while other firms may focus on a particular part of the U.S. (such as the northeast vs. the southwest). When buying a REIT, the investor isn’t purchasing a full property, but a small percentage of many properties. REITs are both publicly and privately traded. Publicly traded REITs are registered with the SEC and traded in major stock exchanges, meaning investors can buy and sell REIT shares using trading apps such as Robinhood or TD Ameritrade.
What is Real Estate Syndication?
Syndication involves pooling together funds from several investors to purchase one property. For example, if an investor wants to purchase a $10,000,000 property but doesn’t have the capital to do so, the investor can put a much smaller amount – say, $100,000 or $1,000,000 – into a Syndication deal and be one of several individuals who owns the $10M property. A Syndication deal might plan to buy
an apartment complex, fully renovate it, and then sell it after holding for 5 or 10 years, delivering a strong return on investment when executed properly.
What are the Differences between REITs and Syndication?
REITs are liquid, meaning the investor can typically cash out anytime. Syndication, on the other hand, is illiquid, making it difficult to cash out until a set period of time has passed. On average, most Syndication companies require the investor to keep their capital in the investment for at least 1 year before allowing investors the opportunity to sell their ownership shares to other individuals.
Syndication often only focuses on one property, whereas those who invest in REITs are investing in several different properties simultaneously. Because Syndication typically only involves investing in one property, it can be considered riskier, but can also generate higher returns. Alternatively, REITs can be considered a ‘safer’ investment because funds are being distributed among a broader range of properties, but the returns are usually much smaller.
Here at Mentis Capital Partners, we specialize in multifamily syndication. We pool together capital from accredited investors and invest those funds into multifamily properties. As deal sponsors, we carefully research the property, neighborhood, and general real estate market during our underwriting to conservatively underwrite our deals. We always invest alongside our investors and are compensated based on performance. If you are an accredited or sophisticated investor, contact us to learn more about how to earn monthly passive income by investing in multifamily syndication.