Many accredited investors choose real estate for a part of their investment portfolios for a number of reasons:
First, real estate has an excellent performance track record over many decades. Second, it's a great inflation hedge, and third, it provides passive income in addition to appreciation. While there's no doubt that real estate is a popular investment choice for accredited investors, there is some debate about what is the best vehicle for those investments, especially with so many newer options in the market.
In this blog, we are going to break down three common real estate investment strategies for accredited investors: crowdfunding, REITs and syndication.
Crowdfunding
Crowdfunding is a real estate investing strategy in which many different real estate investors combine funds in order to purchase properties and share the profits. One of the most traditional ways that this has done is through real estate investment trusts, more commonly referred to as REITs.
A real estate investment trust invests the money pooled from real estate investors through crowdfunding. Many REITs trade on public stock markets and generate healthy dividends. The dividends are funded through the revenue that is generated through the rental properties.
More recently, there has been a wave of online crowdfunding sites like Fundrise, Crowdstreet and others. Increasingly, many of these crowdfunding sites are offering investments for non-accredited investors and may offer fractional ownership in alternative assets like artwork, luxury cars, and more.
Crowdfunding has a number of advantages and disadvantages that real estate investors should be aware of before they get involved with them.
REITs & Crowdfunding:
Pros
- Liquidity
For crowdfunding sites, it's a different story. Fundrise, for instance, traditionally asks for a five year commitment. You can request to cash out at any time, but Fundrise reserves the right to restrict redemptions and you may incur a penalty for early withdrawal, so it's important to familiarize yourself with the funds' rules & regulations.
Adding to the potential risk profile of crowdfunding sites, remember that these aren't shares trading on an open market, so if the company has any financial trouble or decides to limit redemptions, you may have no choice but to leave your money on the platform. Generally speaking, investors should do their own due diligence and be prepared to leave their money locked up for years at a time.
- Dividends
Both REITs & Crowdfunding services generally provide strong regular dividends that can be reinvested or provide cashflow throughout the year. Both options are a good way to earn passive income or compound the growth of your investment. Remember, however, that the dividends will be treated as taxable income.
- Smaller Capital Requirements
If you're just getting started or don't want to lock up a lot of capital, REITs and some crowdfunding sites offer a lower barrier to entry.
For REITs, getting started is as simple as making a trade on the stock market, and there is no minimum outside of the security's current price.
Again, crowdfunding sites can differ greatly depending on the platform. While some offer low cost options for non-accredited investors, others others require proof of accreditation and a larger up front capital commitment.
- Flexibility & Diversification
Cons
- Payouts can be smaller
- Fees
Some investments come with high fees for transactions and management. The higher that the fees are for a given REIT, the lower that the payouts will be. So, before investing in a REIT or crowdfunding service, investors should investigate the fee structure to make sure that they are comfortable with the fee structure.
- Unproven Platforms Add Risk
Syndication
With syndication, real estate investing experts carefully select one or just a few properties and invite investors to invest with them. The sponsor and the investors actually form a legal entity and buy the properties together. There is a clear ownership structure and everyone is paid out according to this structure.
Pros
- Choice
Investors who invest in real estate syndication are able to choose which properties or funds they invest in. Being able to work with the sponsor to choose which properties you invest in gives you greater control over your investments. Of course, you will only be able to choose from the options that the syndication has available. - Transparency
Because investors are classified as part owners of the properties for this type of real estate investment, it will give you greater transparency for your investments. For example, you will be able to see property records and other important documents related to the investment if you so choose. For many accredited investors who invest large sums of money into these investments, this is a significant advantage compared to crowdfunded options. - Personal Relationships
With syndications, you have the potential to develop strong personal relationships with the sponsor and gain trust over time. You will be able to speak to them directly, which is much different than crowdfunded options. If you find a sponsor you like, then you could potentially build a multi-year or even multi-decade relationship with them that could be enormously profitable and rewarding. The best sponsors can drastically outperform the market, just make sure that you choose carefully and look for sponsors led by certified real estate masters with outstanding track records. - Tax Benefits
REIT & crowdfunding income is considered ordinary dividend income, leading to a larger tax bill. One of the biggest advantages to real estate syndication is that income and depreciation pass through to the investor's tax return. (As always, consult your tax professional for more details and how that can apply to your specific situation.)
Cons
- Liquidity
- Higher Capital Requirements
Which is Better: Crowdfunding or Syndication?
The good news is that all of these strategies a great way to add real estate exposure to your portfolio, providing both appreciation and passive income. Also, if you're interested in real estate but don't want to make the commitment to directly researching, purchasing and managing properties, these are all great options for more passive, hands off investments.
That being said, crowdfunding options are, generally speaking, better for investors who want to deploy smaller amounts of capital, are looking for some diversity in their stock portfolios or are just getting started in real estate.
Accredited investors have a lot more options. So, if you want to deploy larger amounts of capital, have more choice & transparency in the properties you invest in, are looking for tax advantages and want to develop direct, long term relationships with sponsors, multifamily syndication is most likely the better option for you.
Bottom line - before investing heavily in any of these options, you should first decide what your budget is, develop your goals, and do your research to determine which is the best option for you.
---
About Ellie Perlman
Ellie Perlman is the founder and CEO of Blue Lake Capital, a woman owned multifamily real estate investment firm focused on partnering with family offices and accredited investors to build and preserve generational wealth. Since its founding in 2017, Blue Lake has successfully acquired and operated multifamily assets across high-growth U.S. markets, completing $1B+ in transactions.
At Blue Lake Capital, Ellie and her team work exclusively with family offices and accredited investors, offering carefully curated investment opportunities that emphasize long-term wealth creation, stability, and risk-adjusted returns. A defining aspect of Blue Lake’s investment strategy is its integration of advanced AI-driven analytics and data science into the entire lifecycle of acquisitions and asset management. By leveraging cutting-edge technology, the firm executes data-driven forecasting on market trends, asset performance, and tenant behavior, ensuring strategic decision-making and optimized returns.
In addition to leading Blue Lake Capital, Ellie is the original founder and host of "REady2Scale - Real Estate Investing" podcast, which provides insights into multifamily real estate, alternative investments, and finance.
Ellie began her career as a commercial real estate attorney, structuring and negotiating complex transactions for one of Israel’s leading development firms. She later transitioned into property management, overseeing over $100M in assets for Israel’s largest energy company.
Ellie holds a Master’s in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can learn more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.
*The content provided on this website, including all downloadable resources, is for informational purposes only and should not be interpreted as financial advice. Furthermore, this material does not constitute an offer to sell or a solicitation of an offer to buy any securities.