REITs vs Real Estate Syndications – Why Not To Invest In REITs
A new member of my Passive Investors Circle recently asked:
“Jeff, is a REIT the same as a real estate syndication?”
This is a great question. Many high-income professionals—especially doctors and dentists—reach a point where they want to explore real estate investments outside the stock market. That’s when they usually discover two main investment vehicles: real estate investment trusts (REITs) and real estate syndications.
At first glance, they may sound similar. Both are ways for individual investors to gain exposure to the real estate market without buying and managing properties themselves. But the fundamental differences in tax treatment, structure, risks, and returns can dramatically affect your investment goals and your long-term wealth strategy.
Let’s break it down.
What Is A REIT?
A real estate investment trust (REIT) is a company that owns or finances income-producing properties. Congress created REITs in 1960 to give everyday Americans access to the same kinds of commercial properties that only institutions and the wealthy could invest in.
Today, REITs own everything from:
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Multifamily apartment complexes
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Office towers
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Shopping centers and retail plazas
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Self-storage facilities
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Industrial warehouses
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Hotels and senior housing
Public vs Private REITs
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Public REITs: Listed on stock exchanges, easy to buy, with share prices that move daily. These are the ones most people invest in through their brokerage account.
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Private REITs: Sold by private equity firms or financial advisors. They don’t trade publicly, and while they sometimes offer higher yields, they carry higher risks and less liquidity.
The main benefits of REITs include:
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Low barriers to entry → you can invest with a few hundred dollars.
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Professional management → the REIT handles property management, leasing, and day-to-day operations.
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Diversification → a single REIT might own hundreds of properties across multiple asset classes.
But the downside is tax treatment. REITs are required by the Securities and Exchange Commission to pay out 90% of profits in the form of dividends.
These dividends are taxed as ordinary income, not at the more favorable capital gains rates. For doctors or other high earners, that means higher tax liability.
What Is a Real Estate Syndication?
A real estate syndication is when a group of investors pools capital to buy specific properties. For example, a syndication might purchase a 200-unit apartment building, a mobile home park, or an RV park.
The roles are divided:
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The general partner (syndication sponsor) handles sourcing the deal, financing, property management, and day-to-day operations.
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Syndication investors (limited partners) provide capital and receive passive returns without being involved in operations.
Most syndications are structured as limited partnerships or LLCs. Investors share in the rental income and appreciation when the property sells.
Private Investments
Syndications are usually private investments. That means they fall under SEC exemptions and are not publicly advertised. Often, only accredited investors can participate, though some exemptions allow non-accredited investors in smaller offerings.
The Main Benefits
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Better returns: Syndication projects often target 15–20% annualized.
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Potential tax advantages: Investors get depreciation, cost segregation, and other deductions to offset taxable income.
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Direct ownership: You own a share of a tangible asset in a real property market that you can evaluate.
The tradeoff is the long-term commitment (usually 5–7 years) and less liquidity than public REITs.
7 Differences Between REITs And Real Estate Syndications
1. Number of Assets
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REITs → Broadly diversified across asset classes and geographies. This reduces exposure to market conditions in any one city.
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Syndications → Tied to one property. While this means more concentration risk, it also gives you full visibility into the deal’s financials.
2. Ownership
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REIT investors: Buy stock in a company. You don’t directly own the properties.
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Syndication investors: Direct partial ownership in a property through an LLC or partnership.
3. Access to Invest
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Public REITs: Simple to buy, accessible to anyone with a brokerage account.
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Private syndications: Harder to access, usually require an introduction to the syndication sponsor or membership in an investing community.
4. Investment Minimums
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REIT investment: Can start with $100.
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Syndication projects: Typically $50,000–$100,000 minimum.
5. Liquidity
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REITs: Trade like stocks. Buy or sell anytime.
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Syndications: Locked in for the full business plan—5 years or more.
6. Tax Treatment
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Syndications: Offer potential tax advantages like depreciation and paper losses, reducing your taxable income and sometimes shielding active income.
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REITs: Dividends taxed as ordinary income. No ability to offset other income.
7. Returns
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REITs: Historical past performance = ~12–13% annual returns.
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Syndications: Often target 15–20% annual returns when combining passive cash flow and capital gains at sale.
Practical Example: $100K in Each
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REIT investment: $100,000 in a REIT might yield ~$12,000 annually in dividends. But if you’re in a high tax bracket, your net after-tax returns could be closer to $7,000–$8,000.
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Syndication investment: $100,000 in a RV park syndication with 18% targeted returns could produce $8,000 per year in rental income plus a lump sum when sold, doubling your money over five years. Thanks to depreciation, much of that income may be tax-deferred.
This is why many real estate investors view syndications as a better option once they have more capital available.
What About Risks?
Every investment vehicle has risks.
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REITs: Risk tied to the overall stock market and interest rates. Share prices can fluctuate daily, even if the properties perform well.
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Syndications: Risk tied to specific properties and the skill of the general partner. Poor property management, bad financing, or weak market conditions can reduce returns.
That’s why due diligence is critical. Syndication investors should evaluate the sponsor’s track record, past performance, and whether the business plan makes sense given current property market conditions.
Which Investment Option Fits Your Strategy?
Your choice between REITs and syndications depends on your investment goals and risk tolerance:
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If you value liquidity and want easy access → public REITs are a convenient option.
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If you want higher potential returns, direct ownership, and tax advantages → private syndications are more compelling.
Some investors blend both:
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REITs for diversification and liquidity.
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Syndications for higher returns, tax sheltering, and long-term growth.
A financial advisor can help prospective investors balance these choices within a larger investment portfolio, but remember this is for informational purposes only, not personalized investment advice.
Conclusion
Both REITs and syndication projects can help you build wealth.
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REITs provide professional management, diversification, and flexibility.
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Syndications offer better returns, potential tax advantages, and ownership of tangible assets, but require patience and trust in the sponsor.
At the end of the day, the world of real estate investing is full of investment opportunities. The key is aligning your financial goals with the right investment vehicle—whether that’s a REIT, a syndication, or a mix of both.
👉 Next Step: Join my Passive Investors Circle, where I share exclusive private syndications in mobile home parks and RV parks that you won’t find in public REITs.
Join the Passive Investors Circle