Real estate investing spans a spectrum, from hands-off strategies like REITs to more engaged models like direct syndications. Both offer advantages depending on your goals, risk tolerance, and level of involvement. This article breaks down the distinctions without positioning one as superior, so you can evaluate which path fits your strategy.
The Investment Spectrum: Passive to Active
Real estate isn’t a one-size-fits-all investment. At one end are passive vehicles, like publicly traded REITs (Real Estate Investment Trusts), which give investors diversified exposure and liquidity without operational responsibility. At the other end is active ownership, where an investor takes full responsibility for sourcing, managing, and eventually selling properties.
But between these two poles lies a third approach: direct self-storage syndications. Here, investors contribute capital as limited partners while professional operators handle acquisitions, financing, leasing, and daily management. It blends the passivity of capital contribution with the strategic advantages of direct ownership, including transparency into specific assets and potential tax benefits.
What Passive Investing Offers
Passive investing typically means convenience and diversification. REIT investors buy shares in a company that owns and manages real estate. Advantages include:
- Liquidity: Shares can be bought or sold daily on public exchanges
- Diversification: Exposure across multiple properties, asset classes, and markets
- Professional Management: No operational oversight required
The trade-offs are limited control, reliance on the REIT management team, and less access to real estate tax benefits like depreciation.
What Active Investing Entails
Active investors commit to both capital and time. They acquire, finance, and manage properties themselves. Advantages include:
- Full Control: Decisions on acquisitions, tenants, improvements, and sales
- Potentially Higher Profit Retention: No shared management fees or sponsor splits
- Direct Asset Oversight: Transparency into operations and strategy
However, this approach can feel like running a full-time business, requiring expertise in property management, construction, finance, and compliance.
The “Middle Path”: Direct Syndications
Direct syndications combine elements of both approaches. Investors place capital into a single property deal or portfolio as limited partners, while sponsors take on the active management role. Benefits often include:
- Deal-Specific Transparency: Review performance metrics and asset plans directly
- Tax Advantages: Depreciation and pass-through structures can improve after-tax returns
- Professional Oversight: Operationally intensive tasks, like revenue management and tenant turnover, are handled by experienced teams
This option appeals to investors who want more alignment with specific assets without managing the properties themselves.
| Tax Benefit | Real Estate Syndication | REITs |
| Pass-Through Taxation | Yes. Income, losses, and deductions pass directly to investors, avoiding double taxation. | No. The REIT pays no corporate tax, but its distributions are typically taxed as ordinary income for the investor. |
| Depreciation Deductions | Yes. Depreciation and bonus depreciation are passed through to the investor as a non-cash deduction. | No. While REITs use depreciation to reduce their own taxable income, the deduction does not flow through to the investor’s tax return. |
| Ability to Shelter Other Income | Yes. Passive losses from depreciation can offset other passive income. | No. Income from a REIT is typically treated as a dividend, not as a source of passive loss to offset other income. |
| 1031 Exchange Eligibility | Yes. Some syndications (e.g., DSTs) can be structured to allow for tax-deferred exchanges. | No. REIT investments cannot be used for a 1031 like-kind exchange. |
| Type of Dividend/Distribution | Cash flow and appreciation are typically realized via direct distribution, with tax benefits flowing through a K-1. | Dividends are categorized as ordinary income, return of capital, or capital gain, with a portion of ordinary income potentially qualifying for a deduction under current tax law. |
Self-Storage as a Strategic Fit
Self-storage syndications, in particular, stand out for several reasons:
- Resistant to Market Shifts: Demand persists in both expansion and contraction cycles
- Fragmented Market: Many facilities are owned by smaller operators, offering opportunities for professional management to create value
- Operational Efficiency: Lower staffing and maintenance costs compared to other property types
These factors make self-storage an asset class where direct syndication can thrive, provided the sponsor has the experience and systems in place to manage daily complexities.
Choosing What’s Right for You
There’s no single “best” model. Instead, the choice depends on your:
- Financial Goals: Are you seeking diversification and liquidity, or tax-efficient long-term wealth building?
- Desired Involvement: Do you want a purely hands-off model, or a closer connection to the underlying assets?
- Time Horizon: REITs provide daily liquidity, while syndications require multi-year commitments.
| REITs | Direct Syndication | |
| Level of Control | Limited. Investor owns a share of the company, not the asset. | High. Investor owns equity in a specific asset. |
| Liquidity | High (for public REITs). Shares are traded on public exchanges. | Low. A long-term commitment (e.g., 5-7 years) is required. |
| Minimum Investment | Often low, can be a single share. | Varies, typically starts at $25,000-$50,000. |
| Asset Type | Diversified portfolio across multiple sectors and locations. | Focused on a single, specific asset (e.g., a self-storage facility). |
| Primary Tax Document | Form 1099-DIV. | Schedule K-1. |
| Risk Profile | Diversified across assets but subject to market volatility. | Concentrated in a single asset, but shared among investors. |
For investors who want the convenience of passivity paired with strategic control and tax advantages, syndications may offer a balanced path. For those prioritizing liquidity and accessibility, REITs remain a proven entry point.
Dahn Corporation has spent decades helping investors navigate this spectrum by structuring self-storage syndications that combine operational expertise with investor transparency. Schedule a call with our team or reach out with a question today to see how this investment opportunity could support your long-term goals.
