Why Syndications Can Outperform REITs

For anyone stepping into real estate investing, the choices can be overwhelming. Many investors, especially those familiar with rental properties or the stock market, find themselves weighing Real Estate Investment Trusts (REITs) against real estate syndications. Both offer pathways to grow your wealth, but in my experience, syndications provide unique advantages for passive investors seeking higher returns, tax efficiency, and tangible connections to their investments.

In this article, we’ll compare REITs and real estate syndications and explore why syndications might be the better choice for investors ready to elevate their portfolios. If you’re curious about transitioning beyond traditional investments into larger real estate opportunities, this guide is for you.

What Is a REIT?

A REIT is essentially a company that owns or finances income-producing real estate. When you invest in a REIT, you’re buying shares of that company, similar to investing in stocks. REITs are known for their accessibility—you can buy shares through your brokerage account—and their diversification, as many REITs own dozens, even hundreds, of properties across different markets and asset classes.

For investors who like simplicity and liquidity, REITs offer a relatively hands-off way to gain exposure to real estate. However, REITs have limitations, including lower tax advantages and less control over how your investment is managed.

What Is a Real Estate Syndication?

A real estate syndication is a private investment where multiple investors pool their resources to purchase a specific property, such as an apartment complex or a commercial building. The syndicator, or sponsor, manages the deal, overseeing everything from acquisition to operations to eventual sale.

As a Limited Partner (LP) in a syndication, you’re a passive investor in the entity that owns the property. While you don’t have direct control over decisions, you benefit from the property’s income, appreciation, and tax advantages.

When I transitioned from managing single-family homes to investing in syndications, I found it incredibly liberating. Instead of dealing with tenants or maintenance calls, I could focus on evaluating deals and watching my investments grow passively. Syndications offered a new level of clarity, with detailed business plans and transparency that helped me feel confident in my choices.

Seven Key Differences Between REITs and Syndications

Let’s dive into the major differences between REITs and real estate syndications and why syndications often provide superior opportunities.

1. Ownership and Control

When you invest in a REIT, you’re buying shares of a company, not directly investing in the real estate. Your returns are tied to the overall performance of the REIT, and you have no influence over the company’s decisions or portfolio.

In a syndication, you’re a Limited Partner, meaning you hold a passive interest in the specific property being acquired. While you don’t have operational control—that responsibility lies with the sponsor—you know exactly which property you’re investing in, its location, and its financials. This transparency made a big difference for me. It felt empowering to invest in a specific asset rather than a faceless portfolio.

2. Diversification vs. Focus

REITs typically own many properties across different markets and sectors, offering broad diversification. While this reduces risk, it also dilutes the performance of any single property.

Syndications, on the other hand, focus on one specific property. This allows you to invest in assets that align with your financial goals, whether that’s high cash flow, long-term appreciation, or a combination of both.

3. Accessibility

REITs are extremely accessible. You can invest with as little as a few dollars and trade your shares anytime through a brokerage account.

Syndications, however, have higher barriers to entry. Many require minimum investments of $50,000 or more and are often only open to accredited investors. Additionally, syndications require more effort upfront to vet sponsors and understand the deal. While this may seem daunting, the due diligence process ensures you’re investing alongside experienced operators in high-quality assets.

4. Liquidity

One of the key advantages of REITs is liquidity. You can buy or sell shares at any time, making it easy to access your money.

Syndications, by contrast, are illiquid. Your funds are typically tied up for 3–7 years, depending on the business plan. While this might seem like a disadvantage, it aligns with real estate’s long-term nature, allowing the asset time to generate stable cash flow and appreciate in value.

5. Tax Benefits

This is where syndications truly shine. As a direct investor in a property, you’re eligible for significant tax benefits, including depreciation, which can offset your taxable income. In many cases, the depreciation benefits surpass the property’s cash flow, meaning you could show a loss on paper while still receiving positive income.

When I invested in my first syndication, I was amazed at how much depreciation reduced my tax burden. It felt like unlocking a hidden advantage that REITs simply don’t offer.

REIT dividends, on the other hand, are taxed as ordinary income, often resulting in a higher tax bill, especially for those in higher tax brackets.

6. Returns

Historically, REITs have delivered average annual returns of around 12–13%, which is solid compared to stocks. However, syndications often outperform REITs, delivering average returns of 15–20% or more.

For example, a $100,000 investment in a syndication with a 20% annual return could double your money in five years. These higher returns, combined with tax advantages, make syndications a compelling option for serious investors.

7. Relationship with the Sponsor

In a REIT, you’re one of thousands of shareholders, with no direct relationship with the company’s management.

In a syndication, you have a personal connection with the sponsor. This relationship allows you to ask questions, receive updates, and build trust. I’ve found the quarterly updates from sponsors incredibly reassuring, as they provide detailed insights into the property’s performance and progress.

Why Syndications May Be a Better Fit for You

If you’re a hands-off investor who values high returns, tax efficiency, and tangible connections to your investments, syndications are hard to beat. They combine the passivity of REITs with the benefits of direct real estate ownership.

Here’s why syndications stand out:

1. Clarity and Transparency: You know exactly where your money is going.
2. Tax Efficiency: Depreciation benefits can significantly reduce your taxable income.
3. Higher Returns: Syndications often deliver better overall returns than REITs.

How to Get Started with Passive Real Estate Investing?

If you’re intrigued by syndications but unsure where to begin, education is the first step. Learn how syndications work, understand the risks, and familiarize yourself with the process.

A great way to start is by downloading our free ebook, which breaks down the fundamentals of syndications in plain language. It’s a beginner-friendly guide to help you navigate your first deal with confidence.

The Bottom Line

Both REITs and syndications have their merits, but if your goal is to maximize returns, leverage tax advantages, and invest in high-quality properties, syndications offer unmatched potential. Yes, they require more upfront effort and higher capital, but the rewards—both financial and personal—are worth it.

Ready to take the next step in your real estate journey? Explore syndication opportunities today and start building the portfolio of your dreams.

To learn more, download our ebook and discover the smarter way to invest in real estate.