In 1990, the average home in the US sold for $150,000. Today, the average home sells for approximately $384,900. That’s more than a two-fold increase in just 30 years.

Maybe you want to get a piece of that action, but you don’t have the capital necessary to buy a home — or maybe you just don’t want the responsibilities that come along with being a landlord.

Are there any other options? Yes. You can invest in REITs and real estate syndications.

What is a REIT? What is a real estate syndication?

Is one better than the other? And, if so, why?

In this article, we’ll answer all those questions and more so that we can help set you up with the best possible investment returns for your situation.

What is a REIT?

REIT stands for “real estate investment trust.” It’s a company that owns and usually manages income-producing real estate (like commercial, residential, medical). They also include companies that manage real estate-related debt, like mortgages and mortgage-backed securities. REITs offer a great way to get started investing in real estate without having a lot of money upfront.

If you have an extra $50, you can find a REIT on a popular stock trading app in the next hour.

What is a Real Estate Syndication?

A syndication, on the other hand, is a group of investors pooling their resources to invest in a property (or properties). A sponsor is in charge of finding the real estate and managing it, and the investors invest their money with the sponsor.

How is that any different from a REIT? So far, they sound really similar, don’t they?

It might be best to highlight the differences:

REIT vs. Real Estate Syndication Difference #1: Assets

Buying into a REIT is like purchasing shares of a company that holds multiple properties.

With a syndication, you’re investing directly in a single property.

When you invest in a REIT, it’s much more similar to buying shares of a public company, like Microsoft or Amazon. Put simply, you don’t have any ownership in the underlying real estate asset; you’re just an investor in a company that owns the properties.

With a syndication, though, you actually do have direct ownership over the property. As an investor along with the general partners, you own the entity that holds the asset.

REIT vs. Real Estate Syndication Difference #2: Access

A lot of the time, syndications can’t be publicly advertised due to SEC regulations. Some can be advertised on the internet but have to follow strict SEC guidelines — you just can’t easily find them on the internet.

So, while you can invest in a REIT in the next hour or so, finding a reliable syndication might take a bit of know-how, or at least the right connections. Sometimes, for certain types of syndications, you also need to be an accredited investor. Finally, to make things even more difficult, the average syndication has a required minimum contribution between the range of $10,000-$100,000.

REITs are publicly traded, so you could use a micro-share stock trading app to buy in right now. For a syndication, though, it’s going to be a bit more difficult.

REIT vs. Real Estate Syndication Difference #3: Taxes

Syndications, like investing directly in most properties, offer a host of tax-saving benefits. A syndication allows for tax deductions like depreciation which is often higher than the cash flow from the property, potentially saving you a bundle on your tax bill.

REIT vs. Real Estate Syndication: Which One is Better?

Finally, the question you’ve all been waiting for: Which type of investment produces the better average return?

Well, it’s tricky. There are residential REITs, healthcare REITs, mortgage REITs, office REITs, and so on — and there are as many syndications as there are available income-producing properties. That means, of course, there are good deals and bad deals, and no one asset is necessarily better than the other.

However, the FTSE NAREIT All Equity REIT index contains all 12 equity REIT subsectors (with the exception of mortgage REITs), and the returns over the past 25 years have outpaced the S&P 500 by a little over half a percentage point. That equates to roughly 12.6%.

Tracking down data on average syndication returns, though, is next to impossible. The data is usually private and there are too many different property types with a wide range of outlooks, but most sponsors aim to return anywhere from 15-20% annually when factoring in both cash flow and the profits from selling the property.

REIT and Real Estate Syndication Pros and Cons

Finally, we’ll sum up the pros and cons of each different type of real estate investing:

REIT Pros

• Doesn’t require a major upfront investment, nor does it require much maintenance or communication.
• Highly accessible. You could launch up a stock trading app and get started in REITs today.
• At roughly ~12.6%, REITs have an average 30-year return that outpaces the S&P 500.

Real Estate Syndication Pros

• Depending on the exact property and market, syndications have the opportunity to bring in outsized gains, but most sponsors aim to ensure their investors receive an average of 15-20% annually which includes the cash flow and the profits from selling the property. Many sponsors aim to double the investment in 5-7 years.
• Syndications can offer massive tax-saving benefits since you can write off business expenses and depreciation against the gains.

REIT Cons

• Some different types of REITs don’t offer the same returns as other types of REITs.
• No unique tax-saving benefits. Capital gains are taxed as capital gains.
• You might want more of a hands-on approach, where you actually get a say in where your money is going.

Real Estate Syndication Cons

• As with REITs, some syndications might offer lower returns.
• The high price of entry, with the average minimum being anywhere from $10k-$100k.
• You have to know the right people to get involved.
• Some syndications require you to be an accredited investor.