Two of the most popular ways that people invest in multifamily real estate are with REITs and with multifamily sponsors.
In this blog we are going to be discussing exactly what each of these real estate investing options are and we will explain the benefits of each. After reading this blog, you should have a much better idea of which option is better for you.
What is a REIT?
“REIT” stands for real estate investment trust. A real estate investment trust is a company that owns, operates, or finances real estate that produces income. REITs pool the funds of many different investors in order to help finance the purchase and operation of the real estate, similar to syndications.
In other words, REITs are entities that take money from many different investors, sometimes millions, and use the money to buy and operate income-producing real estate. Investors can buy shares of REITs on public stock exchanges.
REITs are required to pay a minimum of 90% of taxable income in the form of dividends each year. So, people who buy REITs get to receive dividends for each and every year that they hold the REITs. It is common for REITS to pay dividends that are between 1-5%. The average dividend yield for REITs in America is 2.7%.
REIT companies usually use investor money to buy commercial real estate such as offices, retail centers, warehouses, medical centers, and apartment buildings, etc.
Pros and Cons of REITs
REITS have a number of advantages. For example, because they are publicly traded on stock exchanges, they are highly liquid. This means that you can easily sell any REITS that you own, even at a moment’s notice if you want to. Many real estate investors consider this to be a major advantage because it allows them to capitalize on short-term market conditions.
REITs are also a good way to diversify your portfolio. This is because unlike stocks, REITs contain a wide variety of cash flow generating properties. So, for people who are heavily invested in stocks, commodities, or other assets and who want to diversify their portfolios, REITs are a good option.
Additionally, REITs don’t have to pay a corporate tax. This means that payouts can be higher. Also, the dividends that REITs provide are of course, another benefit.
But, REITs have some disadvantages too. For example, REITs tend to have higher volatility compared to other real estate investing options such as multifamily syndications. Also, returns for REITs aren’t as high as they are for many other real estate investing options either. 2.7% dividends might seem high compared to some assets, but considering that many other real estate investing options offer returns of 5-12 %, some real estate investors feel that REITs do not provide enough cash flow.
Another downside of REITs is that dividends are taxed as income as opposed to capital gains. So, this means that some investors will have to pay more in taxes for REITs compared to other assets like stocks.
What Is Multifamily Syndication?
Multifamily syndication is a form of real estate investing that is similar to REITs in that it involves an entity pooling the money of investors and investing it in real estate on their behalf. However, multifamily syndications typically only invest in multifamily properties, unlike REITs which invest in many different types of commercial property.
There are many advantages of multifamily syndication. The first is that it is one of the most stable and profitable options for real estate investing. This is because people need a place to live regardless of what is happening in the economy. The next is that it is extremely passive – the syndicate handles the property finding, buying, and management. Investors can just sit back and collect their checks.
Even though multifamily syndication is an excellent form of investing, some may argue that there are some drawbacks. For example, because many syndications only allow accredited investors this means that these types of real estate investments are not available to a lot of people and they may have high minimum commitments.
Also, multifamily syndication investments are not as liquid as REIT investments. With a REIT, you can get your money out in a matter of minutes during trading hours by selling your shares. With multifamily syndications, it can take months or years to get your money out, depending on your sponsor's requirements.
Which is Better, REITs or Multifamily Syndications?
It really depends on what your goals are. If your goal is to have the most liquid form of real estate investment, then a REIT would be the better option for you. But if your goal is to obtain the most secure, stable, and profitable real estate investment, then a multifamily syndication would be better for you.
The good news is that you can make money with either one of these real estate investing options. They also both are very low maintenance and will continue to generate passive income for you as long as you hold them.
However, one thing that you should consider, is that most REITs have an abundance of commercial real estate. During the pandemic, as tens of thousands of businesses went bankrupt, commercial real estate such as retail, struggled. It is still in a period of recovery.
Multifamily syndicates on the other hand, primarily invest in multifamily housing such as large apartment complexes. For this reason, the argument could be made that multifamily syndications offer more protection from economic turbulence than other real estate assets.
Ready to Move Forward with Multifamily Syndication?
If you decide that you want to move forward with multifamily syndication, then you must first make sure that you are qualified to invest this way. As mentioned before, many sponsors will require you to be an accredited investor. This generally means that you must make $200,000 for at least two years in a row and have a net worth of at least $1 million, though there are some other inclusions to the definition that can qualify you.
If you are accredited, then you can access larger multifamily syndications. The next step will be to choose a sponsor to work with. When you are selecting a sponsor, you should look for one that has an excellent track record, that is attentive to your needs, that lets you ask any question you want, and that will let you speak with other investors that they have had as a reference.
The good news is that profits from investing with a multifamily sponsor can be significantly higher than they are for REITs. So, if you can find a great multifamily sponsor to work with, it could be a great thing for you. Many people make multiple investments with a sponsor after the first one goes well. From there, you can diversify your portfolio further by investing with two or three different sponsors to maximize your real estate investment strategies.
While wealth is not accumulated overnight and is a “long game”, it is very doable to find success by being consistent, patient, and sticking to your overall investment plans. The right partners are what make all the difference!
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.
