There’s a common misconception in the passive income community regarding syndicated real estate investments, so let’s be clear: a real estate investment trust (REIT) and a real estate fund are not the same thing. When real estate sponsors purchase real estate, then establish a corporation with the purpose of offering income-producing opportunities to investors, it’s called a REIT. Interested investors then buy and sell shares of this corporation like a traditional stock. A private real estate fund is a pool of investment properties purchased by a real estate equity group or firm. Investors contribute capital for the purchase offered by these private or public real estate companies. Real estate funds have typically invested in REITs and real estate-related stocks. These funds have employees who manage the purchasing, maintenance, and ultimate selling of the properties, while the income generated is distributed to the shareholders as dividends. Both REITs and real estate funds pay out regular dividends. However, unlike a real estate investment trust (REIT) that is subject to market fluctuations, real estate funds provide added value through appreciation. And funds are historically available only to accredited, high-net-worth investors and typically require a large minimum investment. Much of the confusion of a REIT vs. Real Estate Fund likely occurs from the different types of real estate funds.
There are millions of investors out there who want exposure to the booming property markets but lack the know-how and high capital requirements to get involved in multifamily and other commercial real estate opportunities. For those investors, REITs and real estate funds offer a way to access these markets, and benefit from their growth, without sacrificing portfolio diversity, and without having to put in the considerable sweat equity that comes with active property investing.
Trion’s approach for our funds is to seek out opportunistic real estate investments, which we then rehabilitate and manage on behalf of our investors. From our founding in 2005, we have closed over $300 million in transactions in this space, and our approach combines substantial renovations with an aggressive lease-up policy to maximize returns for our investor partners. Let’s get into the nitty-gritty of what you should know before investing in a REIT or real estate fund.
Real estate investing typically refers to investing directly (ownership) in a property. Indirect investing involves buying shares in a real estate fund and that fund may or may not contain REITs. Private real estate investment funds like Trion’s Multifamily Opportunity Fund III – are professionally managed funds that invest real estate properties. At Trion, we offer passive investors searching for real estate investments. We don’t invest in REITs, we purchase only multi-family properties that we believe will provide an internal rate of return (IRR) that is far greater than the typical annual rate of growth. It should also be said that we invest in our own funds with our own personal money. When our multifamily investment funds do well, we do well, and so do all our investors. It’s also important to note that we are vertically integrated. Managing the costs of renovation and on-site management allows us to control costs and scheduling.