Real estate investors who wish to transform their hands-on property management into passive income strategies may consider Real Estate Syndications and Real Estate Investment Trusts (REITs) as viable passive real estate investment choices. Both investment options grant real estate exposure without direct property management, but they operate under distinct structural frameworks, liquidity profiles, taxation systems, and control mechanisms.
We'll examine these options for your convenience to help you make an informed choice.
Real estate syndication involves multiple investors combining their capital to purchase one property or multiple assets like multifamily complexes and self-storage facilities. Real estate syndications are typically sponsored by a professional real estate operator who handles acquisition, asset management, and disposition.
Ownership: You're a limited partner with a direct interest in a specific deal. The sponsor retains control as the general partner (GP) or managing member.
Returns: The deal offers preferred returns followed by profit-sharing when the investment is sold.
Liquidity: Low — your capital is locked in until the asset is sold (often 3–7 years).
Accreditation: Usually limited to accredited investors.
May be appropriate for real estate investors who want ownership experience and prefer longer-term commitments because they seek higher returns through value-creation initiatives. However, they carry higher risk, including market, sponsor, leverage, and liquidity risk. Investors should evaluate whether this aligns with their investment goals, risk tolerance, and liquidity needs.
A Real Estate Investment Trust (REIT) is a company that owns and manages multiple income-generating properties. You can purchase publicly traded REITs through stock transactions, but private and non-traded REITs function as pooled investment vehicles with restricted liquidity.
Ownership: You own shares in the REIT, not individual properties.
Returns: Often focus on income via dividends, which are required by law to distribute at least 90% of taxable income to shareholders; appreciation potential varies.
Liquidity: Public REITs offer daily liquidity; private REITs do not.
Taxation: The taxation of REIT dividends equals ordinary income, but qualified business income deductions can reduce tax liability by 20%. A portion of dividends may also be classified as return of capital or capital gains, depending on the REIT’s activity.
This may appeal to people needing diversification, potential for regular cash flow, and simple portfolio access. However, investors should evaluate differences in liquidity, fees, tax treatment, and underlying assets, particularly when comparing public, non-traded, and private REITs.
|
Feature |
Syndication |
REIT |
|
Asset Transparency |
High – typically limited to one or a few known properties |
Varies – public REITs disclose holdings; private REITs may not |
|
Liquidity |
Illiquid (multi-year hold) |
High for public REITs; limited for private/non-traded REITs
|
|
Control |
Limited – no control rights, but sponsor communication is common |
None – fully managed |
|
Minimum Investment |
Typically $25 K–$100 K+ |
As low as a few hundred dollars (public REITs); higher for others |
|
Tax Benefits |
Potential depreciation and expense pass-through |
REIT dividends taxed as ordinary income |
|
Diversification |
Typically Single asset |
Broad portfolio |
Realized assists investment property owners in freeing up equity while transitioning into passive real estate investments through Delaware Statutory Trusts (DSTs), combining real estate syndication advantages with REIT passive income benefits.
Through our Investment Property Wealth Management approach, we identify structures aligned with your goals that can potentially postpone capital gains taxes, receive stable income, and preserve wealth without needing active management of your investments or losing focus on your long-term objectives.
Do you plan on entering the passive real estate market?
We’ll help you explore which structure may align with your goals by examining a DST, REIT, or a syndication-style solution tailored to your needs.
The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.