When it comes to investing in commercial real estate, two popular options stand out: private real estate investments and Real Estate Investment Trusts (REITs). Both offer unique advantages and fit different investor goals, risk tolerances, and liquidity preferences. If you’re trying to decide where to invest your capital, understanding the key differences between private real estate and REITs is essential. This article compares private real estate and REITs across critical factors to help you make an informed investment decision.

What Is Private Real Estate?

Private real estate refers to direct or pooled investments in physical properties that are not publicly traded. Examples include buying an office building, warehouse, or retail center individually or investing in private real estate funds managed by professional firms.

What Are REITs?

REITs are companies that own, operate, or finance income-producing real estate and trade on public stock exchanges, similar to stocks. Publicly traded REITs offer liquidity and easy access to diversified real estate portfolios.

Key Differences Between Private Real Estate and REITs

1. Liquidity

• Private Real Estate: Generally illiquid. Selling properties or private fund shares can take months or years.
• REITs: Highly liquid. Shares can be bought and sold daily on stock exchanges.

2. Investment Minimums

• Private Real Estate: Often higher minimum investments (e.g., $10,000 or more), especially for private funds.
• REITs: Accessible to most investors; you can buy shares with the price of a single stock.

3. Management and Control

• Private Real Estate: Investors often have more control or transparency into specific properties or fund strategies.
• REITs: Investors have no control over day-to-day operations but benefit from professional management.

4. Diversification

• Private Real Estate: Diversification depends on the number of properties or funds you invest in.
• REITs: Offer instant diversification across many properties and markets within a single investment.

5. Return Profiles

• Private Real Estate: Typically aims for higher returns through direct property income and appreciation, but with higher risk and less liquidity.
• REITs: Generally provide stable dividend income and modest growth but are more influenced by stock market volatility.

6. Fees and Expenses

• Private Real Estate: Often involves higher fees, including acquisition, management, and performance fees.
• REITs: Expense ratios tend to be lower, but trading costs and taxes on dividends apply.

7. Tax Considerations

• Private Real Estate: Allows depreciation and other tax benefits that can shield income.
• REITs: Dividends may be taxed at ordinary income rates; fewer tax benefits pass directly to investors.
  
  

Which Should You Choose?

• Choose Private Real Estate If:
  You seek potentially higher returns, enjoy long-term investing, prefer less liquidity, and want to benefit from tax advantages and direct property exposure.
  
  
• Choose REITs If:
  You need liquidity, want easy access to diversified real estate investments, prefer lower minimums, and are comfortable with market volatility.
  
  

The Best of Both Worlds: CRE Commercial Real Estate Income Fund

For investors seeking a middle ground, private real estate funds like the CRE Commercial Real Estate Income Fund offer diversified, professionally managed portfolios of income-producing commercial properties with relatively accessible minimum investments.

This fund combines many benefits of private real estate investing with more liquidity and lower risk than direct ownership, making it ideal for investors looking for stable income and long-term growth.

Learn more at investor.creincomefund.com.

Conclusion

Deciding between private real estate and REITs depends on your financial goals, risk tolerance, investment horizon, and liquidity needs. Both investment types have a role in diversified portfolios.

Understanding their differences helps you tailor your real estate investments to best suit your unique situation.