Real estate investments have generated income for investors for about as long as the concept of private ownership of real property has existed. The fundamental concepts of real estate investment have not changed much over the centuries, but relatively recent innovations allow investors to entrust their money to professionals, freeing them from direct responsibility for managing investment properties. Real estate syndication allows investors to contribute capital to a development project under the management of a syndicator. Real estate investment trusts (REITs) own and manage portfolios of real estate holdings. Syndicates and REITs differ from each other in several important ways. Potential investors should understand these differences before deciding where to put their money.
Syndicates versus REITs
The most fundamental difference between syndicates and REITs involves their relative size and scope. REITs are, essentially by definition, larger than syndicates. They have more investors, and they generally manage portfolios aimed at longer-term holdings. Guidelines for the structure and management of REITs are found in the federal Internal Revenue Code (IRC).
Syndicates tend to be less formal than REITS, with fewer specific legal guidelines or restrictions. They are usually limited to a small number of development projects and therefore tend to focus on holdings and revenues on a shorter time scale than REITs. You can read our many articles about real estate syndication here.