Why Choose Private Real Estate Investments Over REITs?

If you are already heavily invested in the public markets, then diversifying with private real estate investments over REITs, may be the right choice for you.

If you are considering making a passive investment in real estate, then you may be choosing between publicly traded REITs and private real estate investments. Either vehicle is great for gaining exposure to the real estate asset class, however many would benefit from diversifying their portfolio outside of the public markets.

REITs 

A real estate investment trust (REIT) is a company that either owns or finances real estate. REITs aren't taxed at the trust level, but are required to distribute at least 90% of their taxable income to shareholders, in the form of dividends. Typically, they are traded on public exchanges just like stocks and target one type of real estate (i.e. apartments, offices, retail, etc) or geographic area. 

Because REITs are publicly traded, they are liquid, subject to volatility and carry market risk just like stocks. That means when there is a financial crisis or recession and everybody is selling, you will see a decline in the value of your shares. 

Private Real Estate Investments

Private real estate investments usually involve several investors pooling their money together to buy a property that is professionally managed. These investments can be structured in any number of ways, and you can be an equity or debt investor. Private investments typically focus on a single investing strategy like "multifamily value-add".  

Private investments are much less liquid, and their value isn't directly tied to the public markets like REITs. However, because these are private investments its important to understand what you are investing in, and who you are investing with.

Why Choose Private Investments Over REITs?

If you are like many investors, then you might have a 401(k) or IRA that is invested in stocks, bonds, and mutual funds. In this case, it might prove wise to diversify a portion of your portfolio outside of the public markets controlled by Wall Street, and into private investments that are controlled by "Main Street"

This is important because if your entire portfolio is in the public markets, and the market takes a downturn like it did in 2008, you will can see a massive drop in the value of your portfolio, and that might take years to recover.  However, if some of your investments are in private real estate, then at least part of your portfolio will be largely sheltered from the fall.

In many cases when you are making a private real estate investment, you will have a direct relationship with the sponsors, which means easier access to those managing your investment. In addition, sponsors typically provide quarterly investor meetings or webinars where they go over the current progress of the investment and open up a section for Q&A.  Due to the large scale of REITs, this type of access is harder to come by for the average investor. 

The Bottom Line

Both REITs and private real estate investments are great ways to gain exposure to the real estate asset class. The right fit will ultimately come down to your individual investment goals and portfolio allocation. 

However, if you have a large portion of your assets in the hands of Wall Street then it might be a good idea to invest a portion in the hands on "Main Street" to protect yourself in the event the public markets taking a downturn.


Babylon Property Group provides private investment opportunities for investors looking to diversify their portfolio outside of traditional securities found in typical 401(k) and IRA plans. For a FREE consultation, please fill out our investor questionnaire, or contact us directly by phone at (631) 253-1609 or email at tcastelli@babylonpropertygroup.com.