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Real Estate Investing

Real Estate Investing Confusion (Hopefully) Solved

June 11, 20247 min read

"Choosing between private placements and REITs depends on your goals. Diversify to enjoy the pros and minimize the cons. Start your investing journey with confidence by understanding your options!"

Rise Capital Investments


Private Placement versus REIT

When it comes to real estate investing, there's so much to choose from, we often end up choosing...nothing...

We tell ourselves that "investing in real estate is a lot of work, it's risky, overwhelming, I'll just stick to what I'm already doing, those stories of financial freedom are probably just exaggerations anyway."

I know because I said the same stuff for 20 years instead of just starting somewhere, anywhere! If I had just taken my tough learning curve earlier, I'd be so much farther ahead in my gains now.

The key is to not regret not starting sooner, we all feel that way (even my teenagers wish they had started younger!) but just get started.

There are numerous ways to own income-producing real estate from renting out a house you used to live all the way to a high rise commercial building. Navigating the options is less about finding a clear winner with all upside and no downside (the mythical unicorn) and instead allocating % of your investing dollars to each of several options.

"It depends on your goals," can be a frustrating way to start out. Knowing what to consider can help make your allocation decisions a little easier!


1. Control and Influence

Being a passive limited partner in either a REIT or a private placement syndication, you get no say in how deals are run.

Here's where the details matter: does the REIT manager know your name? Usually not. If you call a private placement sponsor, will they answer the phone? They better!

In addition, a syndication has a specific asset or group of assets that a limited partner is investing in, whereas a REIT investor invests in a company that holds a blind pool of properties. This is in generality with exceptions to both of these depending on the structure.

While limited partners don't have a vote after the money is placed, that relationship with the business managers is priceless. In a private placement, your input and opinion matters even if you don't have voting rights. The sponsors are listening!

Influence Winner? 🥊

Draw or Private Placement

2. Liquidity

What do you do if you need to get your money out of an investment? What's the lockout time? With a REIT, you can often make unlimited trades through your stock investing platform to rebalance or cash out.

This is because REITs are not holding hard assets that you can trade, but it is rather trading shares in the company that owns the property. Since REITs are not backed by real estate properties, investors are placing capital in real estate companies.

In a private placement, investors place capital in an LLC created to hold specific properties. This means that the dollars invested are not liquid and cannot be withdrawn until there is a capital event such as a refinance or sale. While there are possibilities to bring in a new investor to cash out another if that investor qualifies and new technologies emerge, trading LP interests in private placements is as of yet still uncommon.

Quick exits aren't a thing here. Selling takes time, whether waiting for the right buyer or timing property sales. Patience is key.

Liquidity Winner? 🥊


3. Volatility

REITs go with the market, private placements trade less often and are more resistant to market forces.

Trading freedom that boosts liquidity comes at a cost, however. The more quickly and often assets can be traded, the more volatile the pricing. With private placements, the asset can't be quickly bought or sold, so those pricing swings and cycles are muted resulting in less volatility and less reaction to markets.

Lower Volatility Winner? 🥊

Private Placement

4. Returns

If you're a real estate whiz, this path lets you shine. Some syndications give you a chance to roll up your sleeves, meshing your expertise with your investments. It's like bringing your A-game to the investment table.

Higher Returns Winner? 🥊

Private Placement

5. Tax Benefits

The tax perks of real estate are enticing, but when we dive in the details can often not deliver on the sizzle.

In simple terms, real estate tax benefits result through the following:

1. Rents are classified as passive (or unearned) income and taxed at a lower rate, the same as long-term capital gains, resulting in lower taxes on that income.

2. Depreciation is "phantom losses" and can further or completely offset passive income resulting in paying little to no tax on the passive income. While the value of the property is going down for tax purposes, the real-world value of the property is going up due to appreciation of the land value.

REITs may or may not have the income or distributions considered as passive income, but most private placement real estate distributions are considered passive. REITs typically do not pass through depreciation to investors, but most private placements do. It's important to research and ask how the income is classified and if depreciation can pass through to you as an investor.

Tax Benefits Winner? 🥊

Private Placement

6. Ease of Investing

Publicly traded markets have incredible ease of entry for several reasons, and this comes with pros and cons regarding private placements.

1. Accreditation

Public markets do not require any proof of financial acumen or means: they are highly regulated so that anyone can invest regardless of background.

Private markets restrict participation to accredited investors (those with a net worth of $1M+ not including their personal home, or take home after tax income of $200k for an individual or $300k for a couple filing jointly.)

In some placements, unaccredited investors are allowed to invest, but with restrictions such as a max % of net worth in a crowdfund, or the investor must have a pre-existing relationship with the offering sponsor.

2. Investment Minimums

REITs are open to all investors, and share prices rival that of stocks and mutual funds.

Private placement entry isn't pocket change; for retail investors the check size minimums are $50k-$1M, and this might be a hurdle for even accredited investors..

3. Paperwork

Investing in a REIT just requires a login and password through an investing portal, proof of ID, and linking to a bank account to transfer funds. There is research to do on choosing which funds to invest in, but the process is fairly straightforward.

Private placements have more stringent requirements. A crowdfund can be fairly straightforward similar to a public market, but other types of funds have more paperwork.

Plan on submitting a letter of accreditation for many funds, obtained from a third party such as a CPA or verification service. In addition, be prepared to submit a subscription agreement, read and sign the legal disclosures, and if applicable, changing IRA custodians and filling out paperwork if using funds from a self-directed IRA.

Ease of Investing Winner? 🥊


7. Diversification and Risk

Risk measures are highly relative to the specific fund or REIT in question as some specialize in just one type of asset as an expert, others diversify across multiple asset types in multiple geographies, there are so many ways to manage risk and diversify!

Private placements tend to be, but are not always, more focused on a smaller number of assets, so while each placement is less diversified, the investor can choose many placements to build a custom portfolio. A REIT may be specialized or generalized.

One big advantage, or disadvantage depending on your perspective, of a REIT is that it is publicly regulated undergoing extensive review before being offered to the public. Private placements that are exempt from registration and lacking that oversight may or may not be more risky depending on the sponsorship team and deals.

Risk Management Winner? 🥊


In the end, the choice between which wave you choose to ride between private placements or a REIT wave boils down to you.

While most private placement sponsors or REIT managers will try to convince investors which one is better, they're just different. Why fight, why not do both? Spreading your dollars across several types on investments can hep you enjoy the pros while minimizing the cons.

Remember, understanding your goals and diving into research are your compass in this investing journey!

At Rise Capital, we are here to help you navigate the deals on our portal to customize your own portfolio to pick and choose which of our offerings are a good fit for you. We offer a variety of private debt/private credit loans as well as profit-sharing partnerships to fit your unique goals. We are honored when you choose to work with us as one of your trusted investing partners!

Real EstateInvesting StratigiesSyndication
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Emma Powell

Emma Powell is a seasoned commercial real estate investor specializing in multifamily properties. With a strong belief in the importance of knowledge and risk mitigation in investments, Emma has dedicated their career to mastering the art of passive real estate investing. Leveraging various financial tools, such as self-directed IRAs, 401(k)s, 1031 exchanges, dividend-paying whole life insurance, HELOCs, and discretionary income, Emma has successfully built a diverse portfolio while enjoying passive cash flow, tax advantages, and substantial returns.

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