In a prior quick tip article, we talked about the different real estate investment strategies – active and passive.

For those interested in passive forms of investment there are several options to consider. Below we outline the more common ones and the various aspects to consider as you determine, which strategy is right for you.

Limited Partner (LP) in syndication: As an LP, you invest directly in an LLC that owns physical property assets (i.e. you are buying shares of a company that owns the property). Once you identify an operator and the asset class you want to invest in, you should allow some time to review the investment opportunity, sign legal documents, and send your funds. In addition, you may be entitled to receive a variety of tax deductions, the main benefit being depreciation (i.e. writing off the value of an asset over time). It is not uncommon for depreciation expense to surpass income thereby resulting in a paper loss but actually positive cash flow. Those paper losses may be able to offset your other income (e.g. W2) but at a minimum, they should carry forward into the future to offset capital gains at the sale of the property. Investing in the physical asset also provides for a good inflation hedge.

With that said, there are other factors to consider when deciding, if being an LP is right for you:
• It requires meaningful upfront liquidity, as the minimum investment amount starts at $25,000 -$50,000.
• Your investment is locked during the holding period of the asset while the business plan is being executed, i.e. you cannot liquidate on a whim (like you can with REITs or a Real Estate Mutual Funds).

Crowdfunding: With this type of passive investment, companies pool investor funds together with the purpose of investing in various real estate assets (single real estate assets). One of the key benefits is the lower upfront liquidity required – a regular entry ticket can be as low as $1,000. Investors pay a management fee to the company organizing the crowdfunding deal. The fund managers make the decision as to the timing, type, and location of the property to purchase. Similar to syndication, this type of investment has a long-term investment horizon – the investor cannot liquidate on a whim. In addition, investors do not own a tangible asset or the ability to control the investments as they do with direct ownership.

REITs (Real Estate Investment Trusts): REITs represent companies (the Trust) that purchase a number of real estate properties and form a portfolio, similar to a mutual fund, (vs. holding standalone single assets). You invest in the company (the Trust) and the Trust owns and operates the underlying asset. REITs can be exchange-traded, non-publicly traded, or private. The investors benefit from periodic dividend income (REITs are required to distribute 90% of their taxable income). Dividends are taxed as ordinary income, which can contribute to a larger, rather than smaller, tax bill. In addition, since you own a share of the portfolio and not the physical property, you do not directly benefit from depreciation, equity build-up/appreciation, etc. (depreciation benefits are typically factored in prior to dividend payouts and as such, you cannot use depreciation expense to offset any of your other income). However, unlike syndications, the upfront liquidity required is smaller and investors can liquidate their REIT holding quickly.

Real Estate Funds (not to be confused with a syndication fund): Real estate funds are a type of mutual fund that invests in public real estate securities, sometimes including REITs (e.g. Fidelity Investments Real Estate Investment Portfolio Mutual Fund). Real estate funds are more of a long-term investment than REITs and provide their value through appreciation, rather than dividends. Unlike REITs, real estate funds tend to be more diversified and invest in many types of properties, not just commercial real estate. They are managed by professionals, which saves investors the trouble of having to do extensive research on where they should put their money. Similar to REITs, those investments can be liquidated quickly and do not come with added direct tax benefits (e.g. depreciation).

Money lending: With this investment strategy you lend capital to an operator that you know, like, and trust in exchange for interest and fee income. The capital is usually deployed for fix and flip projects. Assuming you understand the subject project & market and have confidence in the operator’s ability to execute, this can generate good returns while having your money back within a relatively short time frame (at the conclusion of the project, i.e. within a year at most). However, you will need to ensure you are compliant with your local/state’s regulations for private or hard money lending.

So which strategy is the best? After all, it depends on your personal investment objectives, investment horizon, liquidity, and desire for flexibility. The beauty of the real estate is that there is no one size fits all approach. You can apply a combination of strategies that best suit your individual circumstances and financial goals. Happy investing!

Should you have any questions or want to learn more about real estate investing, please reach out to

Disclaimer: The information presented does not constitute legal, accounting, tax, or individually tailored investment advice. Past results do not represent or guarantee future performance.