Choose Your Fighter: REIT vs. Real Estate Syndication

5 minute read

Ready, FIGHT!

If you ever plan to step into the real estate investing ring, then understanding these two main contenders, Real Estate Investment Trust (REIT) and Real Estate Syndication, is a must.

Think of it like choosing your character in a Street Fighter: each has its unique style, special moves, strengths, and weaknesses. Let’s dive into this Street Fighter-themed comparison to help you decide which investment path is best suited for your financial battle.

Round 1: The Fighters

REITs — the “Ryu” of Real Estate Investing, known for being well-balanced, versatile, accessibility, and great for those just starting out in the fighting arena.

• Balanced (Diversification): REITs offer a diversified portfolio, allowing investments across multiple properties and property types.

• Accessibility (Lower Minimums): REITs have lower investment barriers which contributes to its beginner-friendly nature. You’ll need around a minimum of $1,000 to invest and are not required to be an accredited investor. Think of this investment as more like a stock.

• Limited Control (No influence): Just like how you cannot redesign Ryu’s moves, investing in REITs means little to no control over the property selection or decisions.

Real Estate Syndication — the “Chun-Li” of Real Estate Investing, known for her strong and precise attacks, represents the more complex yet potentially rewarding world of real estate syndication.

• Powerful Strikes (Higher Returns): Like Chun-Li’s iconic and powerful kicks, real estate syndications can deliver higher returns (on average 5–7% more compared to REITs).

• Tailored Tactics (Specific Investments): Chun-Li’s fighting style can be more tailored to the player’s liking, much like how syndications allow investment in specific projects, properties and operators.

• Training Required (Higher Complexity): Chun-Li’s strong potential comes at the cost of understanding and practice. Syndications are more complex because of their individual agreements and partnerships which require careful review. Not all syndications are the same so it is important to understand what and who you are agreeing to.

Round 2: Special Moves

Let’s talk special moves.

It’s essential to know the unique moves and characteristics each character brings to the fight. Think of these traits as the special combos and abilities that define these fighters to guide you to choose the right investment character.

REITs — The “Ryu” of Real Estate Investing

• Liquidity (Hadouken Fireball): Ryu’s classic Hadouken fireball move is fast. REITs offer a similar quickness with their flexibility to enter and exit positions with ease. Again, REITs are more similar to stocks.

• Less Tax Advantages (Tatsumaki Kick): Tatsumaki kick may look flashy, but it lacks the impact of other moves. Similarly, REITs offer fewer tax benefits compared to other investment options, limiting their strategic depth. While REITs take advantage of depreciation prior to issuing dividends, you get no pass-through depreciation to offset other income. This is because you don’t own actual direct ownership in a property.

• Market Volatility (Shoryuken Uppercut): A powerful move that can backfire and leave Ryu open to attack. Liquidity is a double-edge sword that increases market volatility of REITs, as they can be affected by broader stock market conditions or sell-offs without notice.

Real Estate Syndication — The “Chun-Li” of Real Estate Investing

• Depreciation (Spinning Bird Kick): Chun-Li’s spinning bird kick is a controlled, tactical move. Similarly, syndications allow for depreciation benefits, providing a strategic advantage in the form of potential tax savings. As a direct owner in the property, this depreciation can pass-through to offset other income streams.

• Less Liquidity (Kikoken Projectile): Just as the slower Kikoken move requires precision, the lack of liquidity in syndications means careful timing and consideration are necessary before entering this position. Consider yourself locked into the investment for the entire hold period (typically 3–5 years) with few options to exit prior. This helps prevent market volatility as no investor can quickly sell-off as soon as a problem arises. Real Estate is a long-game and this helps protect your capital as an investor as well.

• Higher Minimums (Thousand Burst Kick): Chun-Li’s famous multi-hit kick represents the higher minimum investment required for syndications, packing a powerful punch but demanding more from the player. Most syndications require a minimum of $50,000 and to be an accredited investor, unless you know the syndicator. There are exceptions but this should be considered the minimum.

Final Round: Choosing your Fighter

• If you’re new to the real estate game and want an accessible and diversified fighter, REITs (Ryu) may be a good way to start with less risk.

• If you’re after more control, specific strategies, and potentially greater rewards, real estate syndications (Chun-Li) may be the choice for you.

My fighter is Chun-Li (real estate syndications).

Over the last two years, I have been actively involved in three syndication as an operator. I am not only a passive investor, but I actively manage the property to maximize my returns and the returns of my investors. Not all operator are equal. I have found that the right team is the biggest factor in determining a good versus bad investment. But that is a topic of another time.

Just like in Street Fighter, practice, understanding, and a clear strategy can lead you to victory. Engage with professionals, sharpen your skills, and step into the real estate ring with confidence. Whether you choose Ryu’s balanced approach or Chun-Li’s targeted strikes, may your investment journey lead you to the winner’s circle.