Private CRE Funds vs. REITs: Where the Wealthy Actually Invest

Not all real estate investments are created equal—and not all investors play the same game.

While everyday investors are buying shares of publicly traded real estate investment trusts (“REITs”) for a taste of passive income, the ultra-wealthy are moving differently. They’re not chasing dividend yields on the stock market. They’re going straight to the source: private commercial real estate funds.

These private vehicles offer something REITs simply can’t—direct access to income-producing properties, strategic control, stronger tax advantages, and returns that aren’t tied to market volatility. It’s how family offices and institutional investors build real wealth: by owning the kinds of assets you can drive by, walk through, and influence directly.

In this post, we’ll break down the key differences between REITs and private commercial real estate (“CRE”) funds, show you where the wealthy actually invest, and help you understand which path might better align with your long-term goals.

What is a REIT?

A REIT is a company that owns—or finances—income-producing real estate. Think of it as a mutual fund for real estate. Investors buy shares in a REIT, and in return, they get a piece of the income generated by the underlying properties, typically paid out as dividends.

There are two main types of REITs:

Publicly traded REITs, which are listed on major stock exchanges like the NYSE or NASDAQ.
Non-traded REITs, which are not listed on exchanges and are less liquid but may offer higher yields.

REITs are required by law to distribute at least 90% of their taxable income to shareholders, which makes them popular among income-focused investors. You can invest in a REIT with the same ease as buying a stock, and for as little as a few dollars through platforms like Fidelity, Schwab, or Robinhood.

Benefits of REITs:

Liquidity: Shares can be bought or sold instantly during market hours.
Diversification: Many REITs own dozens—or hundreds—of properties across different markets.
Accessibility: No accreditation or large capital outlay required.
Passive income: Regular dividend distributions with minimal effort.

Drawbacks of REITs:

Stock market volatility: REIT prices often move with the market—even if the real estate portfolio is performing well.
Limited control: Investors have zero say in what properties are acquired, how they’re managed, or when they’re sold.
Tax inefficiency: Dividends are taxed as ordinary income, and REIT investors don’t benefit from depreciation or other direct tax strategies.
Management fees: Layered fees at the REIT level can eat into returns, especially with actively managed funds.

For many investors, REITs are an easy on-ramp into the world of real estate. But for those looking to build lasting wealth and take advantage of real estate’s full potential—REITs are just the surface.

What is a Private CRE Fund?

A CRE fund is an investment vehicle that pools capital from a limited number of accredited investors to acquire, operate, and eventually sell income-producing real estate. Unlike REITs, which are publicly traded and highly regulated, private CRE funds are typically structured as limited partnerships or limited liability companies and are managed by a general partner (GP) or sponsor—usually an experienced real estate operator or investment firm.

These funds are not available to the general public. You won’t find them on the stock market or through your financial advisor’s default recommendations. They’re offered through private placements and are usually reserved for accredited investors—those with higher income, net worth, or investment experience.

What Makes Private CRE Funds Different?

Private CRE funds provide direct exposure to specific real estate strategies:

Core (stable, income-producing properties)
Value-add (underperforming assets with upside through improvements)
Opportunistic (higher-risk, higher-reward plays like ground-up development or repositioning)

Investors in a private CRE fund typically receive distributions from cash flow during the hold period and participate in profit-sharing when assets are sold. Because these deals are structured around specific business plans and targeted returns, they tend to attract investors looking for more control, more upside, and better tax treatment.

Benefits of Private CRE Funds:

Access to institutional-quality deals without having to run them yourself.
Stronger tax benefits, including depreciation, cost segregation, and sometimes participation in 1031 exchanges.
Potential for higher returns, especially in value-add or opportunistic strategies.
More control and transparency over asset selection and business plans—especially if you know the sponsor.

Drawbacks of Private CRE Funds:

Illiquidity: Capital is typically locked up for 3 to 10 years.
High minimum investment: Usually $50,000 to $250,000+.
Requires trust in the operator: The success of the investment is tied closely to the sponsor’s experience and execution.
Limited accessibility: Only available to accredited investors, and often through personal networks or private offerings.

Private CRE funds are how many high-net-worth individuals get access to institutional-grade real estate without taking on the burden of active ownership. They’re not a fit for every portfolio—but for those looking to build and preserve wealth, they offer significant advantages over publicly traded alternatives.

Where the Wealthy Actually Invest and Why

The wealthy aren’t just diversifying—they’re optimizing.

While public REITs may serve as a convenient income play or a hedge for smaller portfolios, they’re rarely the core of a high-net-worth investor’s real estate strategy. When you look at how family offices, institutional investors, and ultra-high-net-worth individuals allocate capital, a clear pattern emerges: they overwhelmingly favor private real estate deals.

The Data Behind the Trend

According to a 2024 survey by FINTRX and UBS Global Family Office Report:

Private real estate accounts for nearly 16–20% of the average family office portfolio.

Why? Because Private Deals Offer What REITs Can’t.

1. More Control
Wealthy investors want to know what they’re investing in, who’s managing it, and how the business plan will be executed. Private funds give them a seat closer to the table—often with regular reporting, direct communication with the sponsor, and sometimes even input on major decisions.

2. Custom Strategies
Rather than blanket exposure to a broad portfolio of assets, private funds can target niche strategies: flex space in growth markets, stabilized medical offices, or value-add industrial conversions. These tailored approaches allow investors to align capital with specific risk/return goals and market theses.

3. Access to Off-Market Opportunities
The best deals rarely hit the public market. Experienced sponsors often source off-market properties through relationships, local expertise, or distressed situations. Private investors benefit from this deal flow in ways REIT shareholders never can.

4. Tax Efficiency
Private CRE investments are structured to maximize tax advantages—like depreciation, cost segregation, and passive loss benefits. In some structures, investors can also participate in 1031 exchanges or use Opportunity Zone incentives. REIT dividends, by contrast, are taxed as ordinary income.

5. Long-Term Wealth Building
REITs are built for liquidity. Private funds are built for wealth. The long-term hold periods of private CRE funds allow time for real value creation: repositioning assets, riding appreciation cycles, and harvesting gains at the right moment—not when the market says so.

In short, the wealthy aren’t just investing in real estate—they’re curating their portfolios with precision. And for those serious about building multi-generational wealth, private funds have become the preferred vehicle.

Key Differences at a Glance

Not sure whether to invest in REITs or private CRE funds? Here’s a quick breakdown of the core differences:

Access
• REITs: Public – anyone can invest
• Private CRE Funds: Private – accredited investors only

Liquidity
• REITs: High – buy/sell like a stock
• Private CRE Funds: Low – capital typically locked for 3–10 years

Minimum Investment
• REITs: As low as $1–$100
• Private CRE Funds: Typically $50,000–$250,000+

Control Over Assets
• REITs: None – managed by a public company
• Private CRE Funds: Some – depending on the sponsor and fund structure

Tax Treatment
• REITs: Dividends taxed as ordinary income
• Private CRE Funds: Depreciation, cost segregation, and potential 1031 exchange benefits

Volatility
• REITs: Tied to public markets
• Private CRE Funds: Tied to actual real estate performance

Transparency
• REITs: Limited insight into individual assets
• Private CRE Funds: Greater visibility into properties and business plan

Targeted Strategies
• REITs: Broad market exposure
• Private CRE Funds: Niche, value-add, or opportunistic strategies

Return Potential
• REITs: Modest, market-based
• Private CRE Funds: Higher, with more variability depending on execution

Regulation
• REITs: Heavily regulated (SEC filings, public disclosures)
• Private CRE Funds: Lightly regulated (private placement exemptions)

Sponsor Relationship
• REITs: None – shares managed institutionally
• Private CRE Funds: Direct relationship with sponsors and operators

Which one is right for you?

Choosing between a REIT and a private CRE fund isn’t just about chasing returns—it’s about aligning your investment with your goals, risk tolerance, and timeline.

Each vehicle serves a different purpose in a portfolio. Here’s how to think about which one makes more sense for you.

Choose a REIT if you:

Want liquidity—you may need access to your capital at any time.
Prefer a hands-off investment with no communication or involvement.
Are just starting out and want low barriers to entry.
Need diversification in a retirement account or brokerage portfolio.
Value simplicity and quick access over control or tax strategy.

REITs are a good fit for investors who want exposure to real estate without the complexity. They're easy to manage, available to anyone, and behave like other publicly traded securities.

Choose a Private CRE Fund if you:

Are an accredited investor with long-term capital to deploy.
Want exposure to real assets with strategic business plans and operator oversight.
Care about tax efficiency—depreciation, passive loss benefits, and cost segregation.
Prefer to invest in niche strategies or value-add deals with stronger upside.
Are focused on building generational wealth, not short-term gains.

Private CRE funds are built for investors who want more than just diversification—they want growth, control, and access to the same playbook used by the ultra-wealthy.

You Don’t Have to Choose Just One

Many sophisticated investors blend both strategies. They use REITs to maintain liquidity and generate steady income, while allocating a larger portion of their wealth to private deals for long-term appreciation and tax advantages.

It’s not about one being better than the other—it’s about understanding what role each can play in your investment portfolio.

How to Vet a Private CRE Fund

Investing in a private commercial real estate fund can unlock powerful returns—but only if you’re backing the right sponsor and the right strategy. Unlike publicly traded REITs, private funds don’t come with layers of regulatory oversight or analyst coverage. That means due diligence is your responsibility.

Here’s how to evaluate a private CRE fund before writing the check.

1. Who’s Running the Fund? (The Sponsor Matters Most)

The track record, reputation, and alignment of the sponsor or general partner (GP) is the single most important factor. Look for:

Years of experience and total deal volume
Specialization in a specific asset class or strategy
Realized vs. projected returns on past deals
Transparency in communication and reporting

Ask for references. Talk to past investors. If the sponsor isn’t open to that, it’s a red flag.

2. What’s the Business Plan?

You’re not just investing in a building—you’re investing in a plan.
Look for clarity on:

Acquisition criteria and underwriting assumptions
Value-add strategy or operational improvements
Targeted hold period and exit strategy
Market selection and demand drivers

You should be able to clearly explain the plan back to someone else. If you can’t, dig deeper.

3. What Are the Terms and Fees?

Private funds have varying structures, and not all are investor-friendly. Pay attention to:

Preferred return (typically 6–10%)
Promote structure (how profits are split)
Asset management and acquisition fees
Waterfall mechanics (who gets paid, when, and how much)

Reasonable fees are fine—misaligned incentives are not.

4. How Is Your Capital Protected?

Risk is part of investing—but smart sponsors have risk mitigation strategies in place. Ask about:

Debt structure and leverage levels
Vacancy assumptions and sensitivity analysis
Cash reserves and contingency plans
Insurance coverage and legal protections

Understand what happens if the market turns or the plan doesn’t go as expected.

5. What’s the Reporting Process?

You should know what’s happening with your money—even if it’s a passive investment. Look for funds that provide:

Regular updates (monthly or quarterly)
Detailed financials and occupancy reports
Clear communication from the sponsor team
Access to a dashboard or investor portal

If they only plan to update you once a year, that’s a sign they may not prioritize investor relations.

Bottom line:
Investing in a private CRE fund can give you access to institutional-quality deals—but only if you choose wisely. Take your time, ask hard questions, and don’t invest unless the deal, the strategy, and the sponsor all align with your goals.

Final Thoughts: Why the Smart Money Chooses Private Deals

Public REITs have their place—but for the wealthy, they’re rarely the core of a real estate portfolio.

Private commercial real estate funds offer something fundamentally different: the ability to invest in real assets, control exposure, build tax-efficient wealth, and partner with proven operators who are actively creating value. These are not just passive bets on the market—they’re strategic investments built around clear business plans and long-term vision.

That’s why family offices, institutional investors, and high-net-worth individuals consistently lean into private deals. It’s not just about higher returns—it’s about access, control, tax advantages, and alignment.

If you’re looking to go beyond the surface of real estate investing, it may be time to start building relationships with sponsors, exploring private fund offerings, and stepping into the kind of investments that build generational wealth—not just dividend income.

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