If your net worth is in stocks and bonds and you have decided you want some of it in real estate, you have three ways to get there. Buy a building. Buy a REIT. Or buy an interest in a private offering that owns buildings on your behalf.
Most people compare them on expected return, which is the one thing none of them can promise. Compare them instead on what they cost you in time, fees, transparency, and liquidity, because those are knowable in advance, and they decide which one you will still be happy holding in year three.
Three Ways to Own Apartments
Direct ownership. You buy, say, a six-unit building in Long Beach for $2,400,000 (an illustration), borrow part of it, hire a manager or become one. You control every decision and carry every consequence. There is no fee to a sponsor because you are the sponsor, and the salary for that job is paid in your evenings.
A REIT. A real estate investment trust is a company that owns hundreds of properties and trades on an exchange, or in the non-traded version, sells shares through advisors. You own a slice of a portfolio you will never see, run by people you will never meet, priced daily by a market that moves with interest rates as much as with rents.
A sponsored private offering. A small group of accredited investors pools capital in an entity that buys a handful of specific buildings. A sponsor finds the properties, borrows against them, runs them, and sells them, and you hold an equity interest in that entity for the length of the plan. It is available only to verified accredited investors, which is both a legal fact and a description of who it suits.
What Each One Costs You
Time. Direct ownership is a part-time job that does not respect your calendar. A publicly traded REIT costs you nothing beyond reading an annual report you will probably skip. A private offering sits in between: a few weeks of diligence up front, then a quarterly report to read, then nothing until sale.
Fees. A building charges you a manager’s percentage, a broker’s commission on the way in and out, and your own unpaid labor. A REIT charges a management layer plus, for non-traded versions, selling commissions that can be a meaningful share of your first dollar; read the prospectus for the exact number. A private offering charges an acquisition fee, an asset management fee, and a share of profit above the preferred return, all of which must be printed in the Private Placement Memorandum (PPM). VisionWise Capital describes its own structure as having low expenses as compared to REITs, and the PPM is where you check that for any given offering.
Transparency. With a building you see everything, including the things you wish you had not. With a REIT you see audited financials for a portfolio too large to reason about property by property. With a private offering you can read the rent roll of each building, and if the sponsor is any good, you can drive to the address and go visit and kick it.
Liquidity. Here the order reverses. A traded REIT sells in seconds. A building sells in months, at a price you negotiate. A private offering does not sell at all until the sponsor sells the properties, and a projected hold of four or five years should be read as a floor. This is the cost that catches people who chose on fees alone.
Leverage. The quiet fourth cost. A building is financed however you choose, often at 65% to 75% of value because that is what the bank will lend. REITs set their own borrowing policy at the company level. A private sponsor sets it per offering; our own discipline is sub-50% loan-to-value on every property, which lowers the cash yield in good years in exchange for a wider margin in bad ones. Our post on why we keep loan-to-value below 50% explains the arithmetic.
Who Each Path Suits
Buy a building if you want an operating business, have the hours, and would rather make a mistake yourself than watch someone else make it. Many of the best sponsors started this way.
Buy a REIT if you need to be able to sell on a Tuesday, if the position is small enough that fees do not matter much, or if you are not accredited. It is the right answer for a lot of portfolios and there is no shame in it.
Consider a sponsored private offering if you are accredited, can leave the money alone for the length of the plan, and want to own identifiable Southern California multifamily, 5–50 units at a time, without running it. The work you take on is choosing the sponsor, and our checklist on how to vet a multifamily syndication sponsor is a good afternoon’s reading before you do.
Three questions we hear most often from investors making this comparison for the first time:
Can I hold a private offering inside my IRA?
Often, yes, through a self-directed custodian that agrees to hold the interest and process the paperwork. The custodian charges its own fees, and if the entity uses debt, part of the income may be taxable to the IRA as unrelated business taxable income, so ask your CPA before assuming the account shelters everything.
What happens if I need my money in year two?
Usually nothing, and that is the honest answer. Most operating agreements allow transfers only with the manager’s consent, there is no market for the interest, and the sponsor is not obligated to buy you out. Size the investment so that year two never forces the question.
How is a private offering taxed differently from a REIT?
A REIT sends you a 1099-DIV, and most of what it pays is ordinary income. A private offering sends a Schedule K-1 that passes through depreciation, which can shelter part of the cash you receive during the hold, with some of that shelter recaptured at sale. Whether that trade is favorable depends on your bracket and your state, which is a conversation for your accountant rather than a sponsor.
Weighing a private multifamily offering against the REIT you already own? Talk to VisionWise Capital →
This content is for informational purposes only and does not constitute investment, legal, or tax advice. Real estate transactions and private placements involve significant risk, including potential loss of principal. Always consult qualified legal, financial, and tax professionals before making investment decisions.
Related Reading
- Accredited Investor Real Estate: What Changes When You Qualify for the Private Markets
- Why VisionWise Capital Keeps Loan-to-Value Below 50%
- How to Vet a Multifamily Syndication Sponsor: Due Diligence Checklist
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For independent investor education, see the SEC's investor.gov introduction to investing.