--- title: The Upsides And Downsides Of REITS Versus Partnerships description: Finding a viable Qualified Opportunity Zone and Qualified Opportunity Fund in which to invest your capital gains requires a great deal of thought. image: https://www.realized1031.com/hubfs/Images/photo/abstract/reit-pen-wood-IS-1269829905.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # The Upsides And Downsides Of REITS Versus Partnerships Posted Sep 7, 2020 ![reit-pen-wood-IS-1269829905](https://www.realized1031.com/hs-fs/hubfs/Images/photo/abstract/reit-pen-wood-IS-1269829905.jpg?width=750&height=392&name=reit-pen-wood-IS-1269829905.jpg) Finding a viable Qualified Opportunity Zone (QOZ) and Qualified Opportunity Fund (QOF) in which to invest your capital gains requires a great deal of thought, consideration, and research. Certainly, the tax deferral benefit is great, but you also need to consider the investment’s underlying real estate project, as well as the fund’s actual framework. But, exactly how is a QOZ structured? While there are hundreds of qualified opportunity zone projects available for investment, their formats generally fall into two categories: REITs and partnerships. While both have the same QOZ requirements -- at least 90% of assets must be located within qualified opportunity zones and must adhere to the “substantial improvement” obligations -- REITs and partnerships differ when it comes to purpose, direction, and exit strategy. ### REITs: Shareholders and Corporations A real estate investment trust -- or REIT -- is a publicly-traded or non-listed corporate entity that buys, sells, owns, and operates income-producing real estate. A QOZ REIT will be active in Qualified Opportunity Zones. While REITs target real estate, they are actually structured, and sold, as securities. When you invest in a REIT, you’re buying shares of the corporation that owns real estate, rather than investing directly in the property itself. The underlying real estate income (rather than the sale or any refinancing) helps determine any potential distributions you could receive.  REITs have several potential benefits, one of which is small minimum investment requirements. Another minimal aspect of a REIT is the paperwork; you only need to file a 1099 form to report any profits to the IRS. Furthermore, while REIT dividends are taxed at your ordinary-income rate, that dividend income is also subject to a 20% deduction as Qualified Business Income.  Other possible upsides include liquidity (REIT shares can be more easily bought and sold than conventional real estate equity) and expertise. The value of REITs can be found in the trained professionals who are able to analyze properties, manage them, and forecast markets. However, if you’re interested in a QOZ REIT investment, you should keep in mind the following limitations: - **Restrictions**. REITs are subject to many requirements, as outlined in the [IRS Form 1120--REIT](https://www.irs.gov/instructions/i1120rei). On top of this, REITs must adhere to the many QOZ regulations. The red tape involved with the set-up and operation of this structure can, in turn, hamper growth or the ability to acquire certain assets. - **Arbitrary pricing**. While REIT dividends are issued based on asset level cash flows, the REIT’s share price is not. Publicly traded REIT prices are subject to marketplace whims, and might not always reflect the fundamentals and true value of underlying real estate assets.  - **Refinancing taxes**. If you receive a refinancing distribution from a REIT, that amount is taxable by the amount that exceeds the basis, or specifically, the cost of your investment. The problem, however, is that the REIT can mark that basis to zero, meaning you are on the taxation hook for that entire distribution amount. ### Partnerships: Unit Holders and Flexibility The QOZ partnership structure involves pooling your capital gains with those of other investors, with the total used by the QOF to acquire assets. Your QOZ partnership’s return will come from an asset’s sale (and any carried interest), as opposed to the dividends that you might receive from a REIT. Furthermore, when you invest in a partnership, you are acquiring direct ownership in the real estate, versus shares of a corporation. Profits are distributed, based on the number of units you own, while the QOF handles transactions, asset and property management, and other ownership tasks. Partnerships are vastly more flexible than REITs; they are not bound by the same rules or regulations, meaning less rigidity in the amount, or type, of real estate that is owned. Additionally, partnerships have specific, timed exit plans, so you know when to expect a potential profit distribution from the sale of an asset. QOZ partnerships can also take on non-recourse debt; in other words, loans that don’t require collateral. This, in turn, allows the partnership to establish a specific basis (i.e., the amount of capital investment in a property for tax purposes). Unlike what happens with REIT ownership, refinancing distributions wouldn’t be considered a taxable event, as the distribution would be part of the basis, as opposed to taxable income. Finally, a partnership doesn’t necessarily have to remain a partnership throughout its QOZ ownership period. It could convert into a publicly-traded REIT without triggering a taxable event for you, the investor.  Though partnerships have more latitude when it comes to QOZ projects, they do come with their own limitations, which are listed below:  - **More paperwork**. Partnership investments require that you file a K-1 partnership form, for each project, in each state in which the asset is located. If your partnership owns multiple assets in different states, a K-1 form will be required for each of these.  - **Higher minimum investments**. Many of these funds are in place to attract accredited investors and/or high net-worth individuals; this means minimum investments can start at $25,000. Additionally, the fund might have a commitment and a capital call requirement. This could lead to more uncertainty as to profit timing. - **Illiquidity**. Partnership funds are created for a specific investment purpose. As such, the fund’s hold period will be in stone, with one or two extension options. While this provides you with a clear timeline, it means the fund won’t be able to formulate an exit strategy, in the event of a market or economic collapse.  ### More on Exit Strategies Whether you’re considering a QOZ REIT or partnership investment, you need to know how, and when, that fund plans to sell the asset, or assets. You also need to determine the type of asset, to help determine ease of exit. For example, it can be easier to sell single properties -- one-offs -- than mixed-property portfolios. And, if your fund is going the portfolio route, a uniform one, containing one type of real estate asset, can allow for a cleaner, more efficient exit. This is because large entities (such as non-QOZ shopping center REITs, for example), might be willing to pay more for all properties, to create scale and and boost capital deployment efficiencies.  ### Better Than the Other? Selecting a partnership or REIT for your investment parameters depends on minimum payment abilities, liquidity requirements, and what’s already in your portfolio. The underlying asset/assets supporting the structure are also important, as is the fund manager’s previous investment experience. Knowledge of the QOZ structure’s structure helps, as you determine a risk/reward investment strategy. Knowing the purpose of REITs and partnerships -- and how they function -- can help add clarity to your investment decisions, which allows you to determine the appropriate target for your capital gains.  *For more information about investing in Qualified Opportunity Zone properties, contact Realized Holdings by logging on to *[*www.realized1031.com*](https://www.realized1031.com/)*, or by calling 877-797-1031. * This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice, meeting the particular investment needs of any investor. There is no guarantee that the investment objectives of any particular program will be achieved. The actual amount and timing of distributions paid by programs is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of their capital. These programs can give no assurance that they will be able to pay or maintain distributions, or that distributions will increase over time. A Guide to UPREIT Transactions [![A Guide to UPREIT Transactions](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/UPREIT-eBook-250b.png?width=250&height=250&name=UPREIT-eBook-250b.png "Learn more about the UPREIT ...") ](https://www.realized1031.com/blog/the-upsides-and-downsides-of-reits-vs-partnerships#blogform) Download eBook ---   --- ### A Guide to UPREIT Transactions ![A Guide to UPREIT Transactions](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/UPREIT-eBook-550b.jpg?width=550&height=600&name=UPREIT-eBook-550b.jpg) Learn more about the UPREIT process. By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received. Search ### [Why Realized](https://www.realized1031.com/why-realized) - [Wealth Management](https://www.realized1031.com/the-wealth-management-gap) - [Why Realized](https://www.realized1031.com/why-realized) - [Our Process](https://www.realized1031.com/how-realized-works) - [Scenarios](https://www.realized1031.com/scenarios) - [Private Client Program](https://www.realized1031.com/private-client) - [Realized Exchange Services](https://www.realized1031.com/realized-exchange-services) ### [The Company](https://www.realized1031.com/about-us) - [The Team](https://www.realized1031.com/about-us) - [FAQ](https://www.realized1031.com/frequently-asked-questions) - [Testimonials](https://www.realized1031.com/testimonials) - [Press](https://www.realized1031.com/press) - [Careers](https://www.realized1031.com/careers) ### [Partners](https://www.realized1031.com/partners) - [Financial Advisors](https://www.realized1031.com/advisor) - [Broker Dealers](https://www.realized1031.com/partners/broker-dealers) - [Real Estate Agents](https://www.realized1031.com/partners/real-estate-agents) - [Certified Public Accountants](https://www.realized1031.com/partners/certified-public-accountants) ### [Resources](https://www.realized1031.com/resources) - #### Learn - [Articles](https://www.realized1031.com/blog) - [Glossary of Terms](https://www.realized1031.com/glossary) - [Capital Gains Tax Rates](https://www.realized1031.com/capital-gains-tax-rate) - #### Watch - [Video Library](https://www.realized1031.com/videos) - [Webinar Archive](https://www.realized1031.com/webinars) - #### Read - [Delaware Statutory Trust](https://www.realized1031.com/delaware-statutory-trust) - [Tenants-In-Common](https://www.realized1031.com/tenants-in-common-tic) - [1031 Exchange](https://www.realized1031.com/1031-exchange) - [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary) - [Qualified Opportunity Zones](https://www.realized1031.com/opportunity-zones) #### Realized - 500 W 13th Street Austin, TX 78701 - (877) 797-1031 ##### [Contact Us](https://www.realized1031.com/contact-us) - [![Realized on Facebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-facebook-whiterev.png?width=60&height=60&name=social-facebook-whiterev.png)](https://www.facebook.com/Realized/) - [![Realized on LinkedIn](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-linkedin-whiterev.png?width=60&height=60&name=social-linkedin-whiterev.png)](https://www.linkedin.com/company/realized/) - [![Realized on YouTube](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-youtube-whiterev.png?width=60&height=60&name=social-youtube-whiterev.png)](https://www.youtube.com/c/Realized1031?sub_confirmation=1) - [![Realized Holdings, Inc. BBB Business Review](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/bbb/RZH2-bbb-seal.png?width=40&height=65&name=RZH2-bbb-seal.png)](http://www.bbb.org/central-texas/business-reviews/real-estate-investors/realized-holdings-llc-in-austin-tx-1000112948/#bbbonlineclick) - [![FEA Logo](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/fea/RZH2-fea-logo.png?width=82&height=65&name=RZH2-fea-logo.png "FEA Logo")](https://www.1031.org) SECURITIES DISCLOSURE Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized Holdings”). Securities and/or Investment Advisory Services may be offered through Registered Representatives or Investment Advisor Representatives of Realized Financial, Inc. ("Realized"), a broker/dealer, member [FINRA](https://www.finra.org)/[SIPC](https://www.sipc.org/), and registered investment adviser. Realized is a subsidiary of Realized Holdings, Inc. ("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "Finding a viable Qualified Opportunity Zone (QOZ) and Qualified Opportunity Fund (QOF) in which to invest your capital gains requires a great deal of thought, consideration, and research. Certainly, the tax deferral benefit is great, but you also need to consider the investment’s underlying real estate project, as well as the fund’s actual framework. But, exactly how is a QOZ structured? While there are hundreds of qualified opportunity zone projects available for investment, their formats generally fall into two categories: REITs and partnerships. While both have the same QOZ requirements -- at least 90% of assets must be located within qualified opportunity zones and must adhere to the “substantial improvement” obligations -- REITs and partnerships differ when it comes to purpose, direction, and exit strategy. REITs: Shareholders and Corporations A real estate investment trust -- or REIT -- is a publicly-traded or non-listed corporate entity that buys, sells, owns, and operates income-producing real estate. A QOZ REIT will be active in Qualified Opportunity Zones. While REITs target real estate, they are actually structured, and sold, as securities. When you invest in a REIT, you’re buying shares of the corporation that owns real estate, rather than investing directly in the property itself. The underlying real estate income (rather than the sale or any refinancing) helps determine any potential distributions you could receive. REITs have several potential benefits, one of which is small minimum investment requirements. Another minimal aspect of a REIT is the paperwork; you only need to file a 1099 form to report any profits to the IRS. Furthermore, while REIT dividends are taxed at your ordinary-income rate, that dividend income is also subject to a 20% deduction as Qualified Business Income. Other possible upsides include liquidity (REIT shares can be more easily bought and sold than conventional real estate equity) and expertise. The value of REITs can be found in the trained professionals who are able to analyze properties, manage them, and forecast markets. However, if you’re interested in a QOZ REIT investment, you should keep in mind the following limitations: Restrictions. REITs are subject to many requirements, as outlined in the IRS Form 1120--REIT. On top of this, REITs must adhere to the many QOZ regulations. The red tape involved with the set-up and operation of this structure can, in turn, hamper growth or the ability to acquire certain assets. Arbitrary pricing. While REIT dividends are issued based on asset level cash flows, the REIT’s share price is not. Publicly traded REIT prices are subject to marketplace whims, and might not always reflect the fundamentals and true value of underlying real estate assets. Refinancing taxes. If you receive a refinancing distribution from a REIT, that amount is taxable by the amount that exceeds the basis, or specifically, the cost of your investment. The problem, however, is that the REIT can mark that basis to zero, meaning you are on the taxation hook for that entire distribution amount. Partnerships: Unit Holders and Flexibility The QOZ partnership structure involves pooling your capital gains with those of other investors, with the total used by the QOF to acquire assets. Your QOZ partnership’s return will come from an asset’s sale (and any carried interest), as opposed to the dividends that you might receive from a REIT. Furthermore, when you invest in a partnership, you are acquiring direct ownership in the real estate, versus shares of a corporation. Profits are distributed, based on the number of units you own, while the QOF handles transactions, asset and property management, and other ownership tasks. Partnerships are vastly more flexible than REITs; they are not bound by the same rules or regulations, meaning less rigidity in the amount, or type, of real estate that is owned. Additionally, partnerships have specific, timed exit plans, so you know when to expect a potential profit distribution from the sale of an asset. QOZ partnerships can also take on non-recourse debt; in other words, loans that don’t require collateral. This, in turn, allows the partnership to establish a specific basis (i.e., the amount of capital investment in a property for tax purposes). Unlike what happens with REIT ownership, refinancing distributions wouldn’t be considered a taxable event, as the distribution would be part of the basis, as opposed to taxable income. Finally, a partnership doesn’t necessarily have to remain a partnership throughout its QOZ ownership period. It could convert into a publicly-traded REIT without triggering a taxable event for you, the investor. Though partnerships have more latitude when it comes to QOZ projects, they do come with their own limitations, which are listed below: More paperwork. Partnership investments require that you file a K-1 partnership form, for each project, in each state in which the asset is located. If your partnership owns multiple assets in different states, a K-1 form will be required for each of these. Higher minimum investments. Many of these funds are in place to attract accredited investors and/or high net-worth individuals; this means minimum investments can start at $25,000. Additionally, the fund might have a commitment and a capital call requirement. This could lead to more uncertainty as to profit timing. Illiquidity. Partnership funds are created for a specific investment purpose. As such, the fund’s hold period will be in stone, with one or two extension options. While this provides you with a clear timeline, it means the fund won’t be able to formulate an exit strategy, in the event of a market or economic collapse. More on Exit Strategies Whether you’re considering a QOZ REIT or partnership investment, you need to know how, and when, that fund plans to sell the asset, or assets. You also need to determine the type of asset, to help determine ease of exit. For example, it can be easier to sell single properties -- one-offs -- than mixed-property portfolios. And, if your fund is going the portfolio route, a uniform one, containing one type of real estate asset, can allow for a cleaner, more efficient exit. This is because large entities (such as non-QOZ shopping center REITs, for example), might be willing to pay more for all properties, to create scale and and boost capital deployment efficiencies. Better Than the Other? Selecting a partnership or REIT for your investment parameters depends on minimum payment abilities, liquidity requirements, and what’s already in your portfolio. The underlying asset/assets supporting the structure are also important, as is the fund manager’s previous investment experience. Knowledge of the QOZ structure’s structure helps, as you determine a risk/reward investment strategy. Knowing the purpose of REITs and partnerships -- and how they function -- can help add clarity to your investment decisions, which allows you to determine the appropriate target for your capital gains. For more information about investing in Qualified Opportunity Zone properties, contact Realized Holdings by logging on to www.realized1031.com, or by calling 877-797-1031. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice, meeting the particular investment needs of any investor. There is no guarantee that the investment objectives of any particular program will be achieved. The actual amount and timing of distributions paid by programs is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of their capital. These programs can give no assurance that they will be able to pay or maintain distributions, or that distributions will increase over time.", "articleSection" : [ "UPREIT" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2022-04-16T17:21:48+0000", "datePublished" : "2022-04-16T17:21:48+0000", "description" : "Finding a viable Qualified Opportunity Zone and Qualified Opportunity Fund in which to invest your capital gains requires a great deal of thought.", "headline" : "The Upsides And Downsides Of REITS Versus Partnerships", "image" : { "@type" : "ImageObject", "height" : 501, "url" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/reit-pen-wood-IS-1269829905.jpg", "width" : 750 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/the-upsides-and-downsides-of-reits-vs-partnerships", "name" : "The Upsides And Downsides Of REITS Versus Partnerships", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/reit-pen-wood-IS-1269829905.jpg" } ```