What Is The Difference Between Real Estate investment Trust & Multifamily Syndication?

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While many investors want to put money into real estate and enjoy the benefits of passive income, not everyone is interested in becoming a landlord. Managing the property and dealing with emergency situations isn’t appealing to everyone.

For investors who still want to put money into real estate but don’t want the responsibilities of being a landlord, you still have a few options. REITs and multifamily syndication immediately come to mind. Both of these are common options for real estate investors who want to enjoy passive income.

But before you can choose one or the other, you need to know the differences between them.

Defining a REIT

A real estate investment trust or a REIT is a company that invests in income-producing commercial real estate. [1]

A REIT buys, sells, operates, or finances commercial real estate. These companies tend to specialize in specific property types such as office buildings, shopping malls, or multifamily apartment buildings. [2]

You can invest in publicly-traded REITs by buying shares through a broker, just like how you would buy stocks.

Defining Multifamily Syndication

In real estate, “syndication” refers to a temporary alliance of investors who are interested in purchasing a larger property—typically one that they would not be able to purchase otherwise. It is when a group of investors pool their money together to buy a single property. [2]

Multifamily syndication refers to a real estate investment wherein multiple investors would purchase a single multifamily property, usually an apartment building.

In a multifamily syndication, there is a sponsor—for example, BAM Capital—that is in charge of locating the deal, coordinating the transaction and financing, and manages the investment once the deal has closed. Investors will supply most of the capital required in exchange for equity in the real estate. [3]

This is another popular choice for passive investors because you get to have a sponsor who takes care of the investment.

The Differences between REIT and Multifamily Syndication

REITs and multifamily syndication have plenty of differences, and some of the most notable ones are the following: number of properties, ownership, accessibility, minimum investment, liquidity, tax benefits, and returns. [1]

You should always consult your trusted CPA and/or attorney when looking at a new investment opportunity.

Number of Properties Involved

A REIT would involve a lot more properties since you are investing in a company that already has a real estate portfolio of properties across multiple markets. You don’t get a say in which apartments are purchased by the REIT and where.

In real estate syndication, you have a few options. Depending on the syndicator, you may invest only in a single property or invest in multiple assets included in a Fund. For example, since BAM Capital follows a Fund model, investors get a piece of each asset in the Fund.

Either way, you will know exactly where the assets are, and how many units are included. You also know all the financial specifics including what the business plan is. [1]

There is naturally a higher number of assets involved when investing in a REIT compared to investing in real estate syndication. However, there is no way to tell exactly what number of properties are involved in a REIT, whereas in real estate syndication there may be one or more assets involved.

The number of assets involved in the investment is one of the biggest differences between REITs and real estate syndication.

Ownership vs. Investment

In a multifamily syndication, you actually have direct ownership of the property because you are investing in it directly through a group investment. Together with the other investors and general partners, you will own the LLC or entity that holds the asset.

On the other hand, investing in REIT means you are simply buying shares in a company. This means you do not own the real estate properties purchased by the REIT. When you invest in REITs, you do not own any underlying real estate. Instead, you own shares in the company that owns those assets. [1]

Investors who want to diversify their investment portfolio may consider REITs and real estate syndication. However, ownership of the real estate asset is an important factor for some investors who are looking for a passive investment. Real estate syndication can be the way to go for investors who want to invest directly into a single property and get a positive cash flow.

Ease of Access

REITs are generally more accessible because the majority of them are listed on major stock exchanges, much like other public stock. Being publicly accessible, it is therefore potentially  easier to invest in REITs.

Real estate syndications are a bit more difficult to find. Some syndication deals are not advertised publicly, and so you would have to know someone who has access to such investment opportunities. On top of that, several real estate syndications are only open to accredited investors, which may be an obstacle for some investors. [1]

Fortunately, BAM Capital can help you find the right multifamily syndication deal for  accredited investors, which means accessibility is no longer a problem.

Minimum Investment

Investing in a REIT is just like buying stocks: you purchase shares and that’s it. You can even invest just a few bucks. This is perhaps the biggest advantage that REIT has over real estate syndication. Being able to invest a very small amount of money is appealing to many investors, particularly those who are just getting started with real estate investing. [1]

That said, multifamily syndication deals have higher minimum investments and are recommended for more experienced investors. The minimum investment amount depends on the property.

While the minimum investment is higher, you can also rest easy knowing that multifamily syndication is also the safer real estate investment.

Liquidity

REITs keep your investment liquid, which means you can buy or sell your shares at any given time. Your money is not locked in for a set period of time.

Investing in multifamily syndication means your money is locked in until the end of the deal. That’s because you are directly investing your money into a real piece of property. Depending on the deal structure, investors may or may not get an equity share at the end. For example, BAM Capital’s Series A units offer a higher targeted monthly return with no equity share, while the Series B units offer lower targeted monthly return with an equity share at the end.

Tax Benefits: Syndication vs REITs

When investing in real estate directly, such as in multifamily syndication, you benefit from a variety of tax deductions including depreciation. These benefits can be substantial in some cases such as when there is accelerated depreciation. Some investors see these tax benefits and tax savings as reason enough to invest. [1]

On the flip side, the tax benefits you get from investing in REIT are not as significant. Although you still get the benefits of depreciation, those are factored in before you get your dividends, so there are no tax breaks on top of that. You also can’t use that depreciation to offset any of your other income.

Overall, real estate syndication offers more tax benefits for real estate investors. You can still invest in a REIT, but this is just another factor to be considered when looking at prospective investments.

Returns

The returns for each investment can vary wildly depending on a number of factors such as the property, the manager, and timing. Between the two investments, multifamily syndication generally has the higher average return, with investments that can reach upwards of 20 percent annual returns. REITs on the other hand may average about 12 percent per year. [1]

For publicly-traded REITs, the returns can be volatile. REITs can be affected by economic factors including interest rates and unemployment.

Multifamily syndication is the safer real estate investment and it can also give you greater returns, which makes it the smart choice for investors who want passive income from real estate.

Want to Explore Syndication Investments? Work With BAM Capital

Investing in real estate can give you a positive cash flow whether you choose to invest in a REIT or go for real estate syndication. Both types of investment have their pros and cons involving cash flow, tax deductions, tax breaks, direct ownership, depreciation benefits, and investment minimums.

REITs are more liquid and require a smaller minimum investment, while multifamily syndication deals are safer, and offer greater returns and tax benefits.

Accredited investors who want to enjoy the benefits of the latter should work with an experienced multifamily syndicator like BAM Capital.

BAM Capital specializes in the acquisition and management of income-producing properties, primarily multifamily apartment communities. Trusted by accredited investors, BAM Capital has a low-risk business model that achieves maximum benefit.

BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. Currently, BAM Capital has $593M AUM and 5,000 units. [4]

From start to finish, BAM Capital handles the process of finding the best real estate opportunities and negotiates the purchasing and financing on the investor’s behalf.

Want to learn more? Schedule a call with BAM Capital today.

The contents on this site are for informational and entertainment purposes only and do not constitute financial, investment, or legal advice. BAM Capital cannot guarantee that the information shared on this post or page is appropriate for you and your financial situation.  By using this site, you agree to hold BAM Capital and any and all entities related to the writing & publishing including BAM Capital’s parent company harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site. Always consult your investment advisor, CPA, and other professionals before making an investment. BAM Capital is excited to help you grow your investment assets. Please contact us to see how we can help you.”

Sources:

[1]: https://goodegginvestments.com/blog/reit-vs-syndication/

[2]: https://fnrpusa.com/blog/reits-vs-syndication/

[3]:https://www.millionacres.com/real-estate-basics/real-estate-terms/investing-multifamily-syndication/

[4]: https://capital.thebamcompanies.com/

 

About BAM Multifamily Growth & Income Fund II

BAM Capital created this fund in order to yield consistent and reliable cash flow, long-term appreciation, and accelerated tax benefits. The fund aligns with BAM Capital’s demonstrated track record of successful multifamily investing by continuing to implement our signature investment thesis, now in fund format. The fund aims for greater overall returns and lower risk through a multi-asset diversification strategy.

  • Consistent passive income
    Lower-risk assets with in-place cash flows with the ability to distribute preferred return after acquisition.
  • Significant tax benefits
    A cost segregation analysis allows for accelerated deprecation to years of ownership. This large passive loss gets passed onto investors through a K1.
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    In-house property management and construction allow for predictable cost reduction and value add.

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The contents on this site are for informational and entertainment purposes only and do not constitute financial, investment, or legal advice. BAM Capital cannot guarantee that the information shared on this post or page is appropriate for you and your financial situation. By using this site, you agree to hold BAM Capital and any and all entities related to the writing & publishing including BAM Capital’s parent company harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site. Always consult your investment advisor, CPA, and other professionals before making an investment. BAM Capital is excited to help you grow your investment assets. Please contact us to see how we can help you.