How are syndications different from REITs?

REIT (Real Estate Investment Trust) is a company that owns, operates or finances income-generating real estate. Similarly to syndications, investors buy shares in the REIT and own a percentage rather than the property itself, however REITs are traded in public exchanges.

Another main difference is syndications purchase a specific property while REIT is a company that invests in a variety of real estate projects. Investors may not always have visibility into them. Syndications on the other hand, allow investors to identify the exact property, business plan and sponsor team to determine if it’s a worthwhile investment.

Given that REIT has a different structure, investments can be made with a few dollars of investment by anyone with a brokerage account. Investors in syndication deals need to meet the criteria of accredited or sophisticated investors in order to participate. These guidelines are defined by the SEC which limits accessibility.

Syndications have several beneficial tax benefits than REITs. Income generated from a REIT is considered ordinary dividend income, which is taxed at a much higher rate. Passive investors in syndications can take advantage of full depreciation and show a paper loss to offset passive income. Therefore, sophisticated passive investors find syndications to be a more effective investment vehicle to build long term wealth while reducing their tax liabilities.