Real estate syndications VS real estate crowdfunding sites

[Justin Goodin]

Maybe one of your friends claims they invested in a syndication deal for just a few thousand bucks. This is because recently, real estate crowdfunding sites like RealtyMogul, RealtyShares, and Fundrise have helped make it possible for millions of people to invest passively in real estate.

Real estate crowdfunding sites can be a good place to find real estate syndication offerings. However, there are a few things you should keep in mind.

First, most of these platforms require that you be an accredited investor in order to invest in their real estate syndication offerings.

Some of these platforms do offer REITs (real estate investment trusts) as an alternative for non-accredited investors. Typically, you can invest in these REITs with a low minimum investment (you can invest in Fundrise’s eREIT for just $500).

Just be aware that REITS are not real estate syndications. Rather, it’s a fund, which is likely what your friend actually invested in.

When you invest in a REIT, you're investing in a company that buys real estate; you don't have direct ownership of the underlying asset yourself, like in a real estate syndication. You would likely still get good returns, you would be investing in a bunch of assets rather than a single one, and you wouldn't get the same tax benefits as with a real estate syndication.

[Aaron W.]

Agreed! One of the biggest differences between a REIT and syndication is the tax benefits the investor receives.

With a REIT, you receive dividends which are taxable unless you have losses you can apply. You'd have to take the step to sell off investment losses then claim them on your tax returns.

With a syndication, you also have taxable passive income, but if the operator is doing things right, you will receive depreciation benefits which can offset most if not all of your distributed cash flow. If the operator does a cost segregation and takes the bonus depreciation, then you should see even more upfront depreciation. As a passive investor, you will have to do little to no work to claim this benefit. Just ensure the sponsor/GP/operator you are working with has this built into their plan.