Choosing between a private REIT and a public REIT can shape your path to building real estate wealth. The U.S. market has more than 225 publicly traded REITs with a combined market value of $1 trillion. These investment vehicles are the life-blood of smart investors who want property exposure without owning real estate directly.
The returns from these options differ by a lot. Public REITs give average yields of about 3.5%, while private REITs can reach up to 10%. This gap shows up clearly during tough economic times. Public REIT prices fell harder than private property values during both the Great Recession and COVID-19 pandemic. Public REITs let you buy and sell quickly through stock exchanges. Private REITs need you to stay invested for 5 to 10 years but might protect you better from market swings.
Your choice between private and public REITs ended up depending on your investment timeline, need for quick cash, and comfort with risk. Public REITs let you start with less money but come with market ups and downs. Private REITs just need higher minimum investments—sometimes up to $25,000—but can protect you from stock market mood swings. Let’s get into what makes these two real estate investment approaches different before you decide which fits your portfolio better in 2025.
Ownership and Access: Who Can Invest in Public vs Private REITs
The structure of REITs is different and shapes how you can invest in them. You need to review which type matches your investment ability and goals.
Investor Eligibility: Accredited vs Retail Access
The investment world creates a clear split between who can buy private and public REITs. Public REITs welcome everyone through national stock exchanges. They’re available to all investors whatever their financial status. You don’t need special qualifications to buy shares of these exchange-listed securities.
Private REITs work differently with strict rules about who can invest. These investments let only institutional investors like pension funds and “Accredited Investors” participate. To be an Accredited Investor, you need $1 million in net worth (not counting your primary home) or yearly earnings above $200,000 for the past two years ($300,000 with a spouse).
This qualification threshold, 90 years old under Regulation D of the Securities Act of 1933, limits private REITs to savvy investors who can handle riskier investments. This exclusivity means many regular investors can’t access these potentially higher-yielding private real estate deals.
Minimum Investment: $1,000 vs $25,000+
The original investment amounts show another big difference between private and public REITs. Public REITs let you start with just one share’s price. Some public REITs offer direct purchase programs starting around $1,500, staying available to most investors.
Private REITs need much bigger commitments. Most ask for minimum investments from $1,000 to $25,000. On top of that, some private REITs made for institutional or accredited investors set the bar even higher. You might see minimum investments between $10,000 and $100,000. Marquee Funding Group’s Capital Fund 1, for example, asks for at least $50,000.
This money barrier keeps out smaller investors but might open doors to investments you won’t find in public markets.
Regulatory Oversight: SEC Reporting vs Private Placement Rules
Rules and regulations create major differences between these investment options. Public REITs must sign up with the Securities and Exchange Commission (SEC) and share lots of information. They need to release quarterly financial reports, yearly audited statements, and updates about significant business changes.
Private REITs don’t follow the same rules. These investments skip SEC registration and use private placement rules under Regulation D instead[72]. This means they don’t have to share as much information.
Public REITs trade on national stock exchanges with live pricing and expert analysis. Investors always know what their shares are worth. Private REITs lack this openness—they only need to share estimated share values 18 months after closing their offering. This leaves investors guessing about their investment’s real performance.
Smart investors who want special real estate opportunities should think over these differences. They need to balance ease of access, clear information, and possible returns in their investment mix.
Liquidity and Exit Options: Trading Flexibility Compared
Liquidity plays a crucial role when comparing private REIT vs public REIT investments in 2025. Your investment experience and potential returns depend largely on knowing how to enter and exit positions.
Public Market Liquidity: Instant Buy/Sell Access
Major stock exchanges make publicly-traded REITs as accessible as traditional stocks. You can buy or sell positions instantly during market hours without holding periods. Public REITs let you react quickly to market changes or personal financial needs, unlike property ownership that takes months to sell.
Trading flexibility gives investors a big advantage when they need quick access to capital. The U.S. market offers over 225 publicly-traded REITs, which means you can diversify and adjust your real estate exposure whenever needed. Exchange pricing also ensures you know your investment’s exact value at any time.
Private REIT Lock-in Periods: 3 to 10 Years
Private REITs work quite differently and restrict access to invested capital through extended holding periods. Most lock-in periods last five to ten years or longer. Your investment stays locked away during this time, which creates problems for investors who need flexibility.
Private real estate investments are naturally illiquid because their assets take time to sell without losing value. Limited partners can’t withdraw funds early, even if investments perform poorly. Many private REITs start with two-year lock-out periods, and redemptions face strict limits afterward.
Redemption Programs and Secondary Markets
Private REITs try to address these concerns through structured redemption programs with specific limits. Monthly withdrawals usually cap at 2% of net asset value, while quarterly limits reach 5%. Redemption requests often exceed these limits, leading to partial payouts or complete freezes.
To cite an instance, see Blackstone’s BREIT, which received $4.5 billion in redemption requests in March 2023 but approved only $666 million (about 15%). Starwood REIT also reduced its redemption caps to 0.33% monthly and 1.0% quarterly ($33 million monthly/$100 million quarterly) during high redemption periods.
Secondary marketplaces now offer alternative exit options beyond official redemption programs:
- LODAS Markets – An online platform matching buyers and sellers of private REIT shares
- Central Trade and Transfer – Facilitates eBay-style auctions for private REIT investors
Selling through these markets usually means accepting discounts of 10-20% below NAV. Buyers demand this “illiquidity premium” when purchasing restricted investments.
The liquidity difference between these investment structures creates a clear choice: public REITs offer quick access but more volatility, while private REITs provide stability but restrict access to your capital. Your real estate investment strategy should line up with your time horizon and cash needs.
Tax Treatment and Reporting Differences
Tax considerations can make a big difference in your actual returns when comparing private REIT vs public REIT investments. Your after-tax investment performance depends on understanding these nuances.
Tax Forms: 1099 vs K-1
Public and private REITs handle tax reporting quite differently. Public REITs give investors Form 1099-DIV, which makes tax filing simple. This form combines your dividend income information in one document that works naturally with most tax preparation software. Public REITs avoid entity-level tax through dividends paid deductions while providing this straightforward Form 1099 reporting.
Private REITs work as pass-through entities and usually give Schedule K-1 forms. These forms show your share of income, deductions, and credits from the partnership. You’ll need to file K-1 forms in each state where the REIT owns property, which can increase your paperwork and accounting costs. K-1s also tend to arrive late in tax season, and many investors have to file extensions because of this.
Depreciation and Pass-Through Benefits in Private REITs
Private REITs give investors unique tax advantages through their pass-through structure. Depreciation deductions are a major benefit. Private REITs can pass depreciation benefits straight to investors as LLCs, which can lower taxable income. You might earn $10 per share but pay taxes on just $7 after depreciation deductions.
Pass-through entities let all tax benefits flow right to investors. This includes chances to participate in special tax-advantaged programs like Opportunity Zones and 1031 Exchanges.
Dividend Taxation: Ordinary Income vs Capital Gains
Public and private REITs tax dividends differently. Public REIT dividends are mostly taxed as ordinary income at your tax rate. These dividends don’t get the special qualified dividend tax rates that regular corporations offer.
The Tax Cuts and Jobs Act lets individuals deduct 20% of qualified REIT dividend income through 2025. This drops the maximum federal tax rate on ordinary REIT dividends from 37% to 29.6% for top-bracket taxpayers.
Private REITs offer better capital gains treatment. When they sell properties held over a year, the dividends might qualify for long-term capital gains rates (usually 15-20%) instead of ordinary income rates. About 11% of REIT dividends across the market were taxed as long-term capital gains in 2023.
Both types of REITs sometimes give return of capital payments. These aren’t taxed right away but lower your investment’s cost basis. Smart investors can use this to plan their taxes better since they only pay when they sell their shares.
High-net-worth individuals should talk to qualified tax advisors about these differences to maximize their real estate investment’s tax efficiency.
Return Potential: Yield, Appreciation, and Volatility
The performance gap between private REIT vs public REIT investments plays a crucial role for savvy investors looking to maximize their real estate exposure. These return differences can help you make better allocation decisions.
Dividend Yields: 3.5% vs 8-10%
The yield differences between these investments create distinct income profiles. Public REITs generate dividend yields of 3.5-6%, which reflects their stock market valuation premiums. Private REITs are no match for these numbers. They deliver higher income streams with yields reaching 7-10%.
This yield advantage comes from basic structural differences. Both investments must distribute 90% of taxable income as dividends to keep their REIT status. Private REITs can invest in higher-yielding, less liquid assets that public vehicles tend to avoid. The high yield premium makes private REITs a great option for income-focused investors, especially over longer holding periods.
Appreciation Trends: Public vs Private Real Estate
Capital appreciation patterns show interesting similarities despite their different structures. Over twenty years, public REITs grew by 15% annually while private real estate investments saw 13% growth. Public REITs have a slight edge historically. Both approaches delivered strong appreciation during the bull market since 2009.
Today’s analysts see a valuation advantage in public REITs. Industry data shows public REITs have higher occupancy rates than private ones across property sectors. The public-private cap rate spreads reached 169, 141, 84, and 80 basis points for industrial, apartment, office, and retail sectors in Q4 2024.
Volatility: Market Sentiment vs Asset-Based Valuation
Risk profiles vary greatly between these approaches. Public REITs show three times more volatility than private real estate investments. They move closely with market trends—a 10% drop in the S&P 500 usually means an 11% fall for public REITs.
Private REITs shine during market downturns. They often stay positive when stock indices turn negative. This unique risk profile protects investors through reduced correlation with equity markets.
This stability has its costs. Public REITs offer immediate price updates through exchange trading. Private vehicles use periodic asset-based valuations that smooth out short-term swings through appraisal methods. Investors who value stability over quick access to cash often find this trade-off worthwhile.
Ready to optimize your real estate portfolio with the right REIT strategy? Schedule a personal consultation at https://primior.com/book/ to discuss your investment goals.
Risk and Transparency: What Investors Should Know
The risk profile differences between private REIT vs public REIT structures will help you make smarter real estate portfolio decisions in 2025.
Fraud and Disclosure Risk: SEC vs Third-Party Audits
These investment vehicles have very different regulatory protections. Public REITs must follow strict SEC regulations with standard disclosure requirements. This gives investors strong protection from potential fraud. Private REITs have less oversight because they don’t need SEC registration or meet disclosure requirements. This lack of regulation has made investment fraud the costliest type of fraud in the US. Fraudsters stole $3.82 billion in 2022 alone.
Private REITs usually hire third-party valuation providers to build trust. These providers sometimes get paid by the REIT, which could create conflicts of interest. The internal valuations might not show true market values. This leads to “phantom pricing” where share values are higher than what assets would sell for.
Market Risk: Stock Correlation vs Real Asset Exposure
Public and private REITs give you different levels of market risk exposure. Public REITs trade on exchanges, so they react strongly to stock market mood rather than property performance. The numbers tell the story – when the S&P 500 drops 10%, public REITs fall 11%.
Private REITs stay closer to real estate market fundamentals instead of stock market sentiment. This might protect your investments from stock market swings. However, you face other risks like possible overvaluation and limited ways to find out true prices.
Operational Transparency: Asset-Level Reporting
Public REITs give you a clear view of operations through quarterly SEC filings. This helps you analyze how the portfolio performs. You get detailed reports about each property’s performance.
Private REITs don’t share much about their assets and operations. Many wait up to 18 months after their offering closes to reveal estimated values. This leaves you in the dark about real performance and asset quality.
Want to learn which REIT structure matches your risk comfort level? Book a tailored strategy session at https://primior.com/book/.
Conclusion
Conclusion: Choosing the Right REIT Strategy for Your Portfolio
Your best choice between private and public REIT investments comes down to your financial goals, liquidity needs, and risk tolerance. Public REITs definitely give you unmatched access and liquidity. You can enter and exit positions easily, with clear pricing and regulatory protection. Private REITs can deliver yields 4-5 percentage points above public options. But this comes with major trade-offs in access and liquidity.
Tax implications play a crucial role too. Public REITs keep tax reporting simple with Form 1099-DIV. Private REITs might give you better tax efficiency through pass-through depreciation benefits and dividend treatment. Both structures let you invest in similar assets, but they perform quite differently. Public REITs move more closely with broad market indices. Private vehicles stay more connected to ground real estate fundamentals.
Smart investors might want to use both approaches. Public REITs can handle your liquid allocation needs, while private REITs work better for long-term income goals. Using both strategies lets you spread investments across property types that you might only find in one structure or the other. Want to create a REIT investment strategy that fits your financial goals? Book a consultation with our real estate investment experts at https://primior.com/book/ to find the REIT structure that matches your wealth-building goals for 2025 and beyond.
The key is to know how these investment vehicles differ. This knowledge helps you make smart decisions that boost returns while keeping the right risk level in your real estate portfolio.
