An UPREIT Structure vs. Traditional REIT Investing | The Peak Group

At The Peak Group, we know a radical commitment to transparency is crucial when working with something as high stakes—and as valuable—as residential real estate. We also know that many of the investors we serve are relying on returns from the Peak Housing REIT as part of their long-term financial freedom.

This makes understanding exactly how an UPREIT (Umbrella Partnership Real Estate Investment Trust) structure benefits you as a property owner is a crucial component of successful investing. However, to do this correctly requires an understanding of the differences between an UPREIT structure and traditional REIT investing.

Sharing the information we do on our blog here at The Peak Group is just one way we continue our commitment to transparency. There’s either too much misinformation about various types of REIT investing, or not enough genuine details! Let’s tackle some of this today as we break down why we chose UPREIT investing as our vehicle of choice for building our long-term wealth—and yours!

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Public vs. Private Return Potential

The vast majority of traditional REITs are public and operate off of a stocks-based structure. However, rather than relying on intellectual property or some other intangible service to back these stocks, their value is backed by the real estate held by the REIT in question. While a public REIT makes it easier for anyone to enjoy the benefits of real estate, if you want preferred returns, then a private UPREIT structure will actually benefit you more as an investor.

  • Private UPREIT investing typically has an investing threshold interested investors must meet to gain access.
  • This minimum contribution to the UPREIT is still typically less than the cost of purchasing real estate outright.
  • This threshold reduces risk when investing in an UPREIT by encouraging experienced investors to join the fold.

Because an UPREIT like the Peak Housing REIT is private, it provides room for better returns to the investors we serve over what public REITs are typically able to offer.

Currently, we are projecting returns up to 9% for our portfolio, paid quarterly—and we are crushing other asset classes. When you compare that to dividends from public REITs hovering around only 4% in slowing multi-family markets like New York (which have been heavily impacted by COVID-19), the benefits of qualified, private REIT investing via UPREIT become clear.

Stocks vs. Operating Units

We already touched lightly on the basic structure of a public REIT relying loosely on stock-market methodology. Unfortunately, this also makes them highly susceptible to taxation. To get around this blatant cash-grab leveraged by Uncle Sam, the UPREIT was born.

Unlike traditional REIT investing, when you buy into an UPREIT or transfer properties in your portfolio to the Umbrella Partnership, you receive tax-deferred operating units in exchange for your contribution. This is the heart and soul behind the creation of the UPREIT structure: beleaguered investors looking to defer capital gains tax on a sizeable and well-appreciated portfolio will benefit more from UPREIT investing!

Until you decide to ‘cash in’ your operating units by converting them into a traditional stock format, they’ll remain tax-deferred. This ends up being an additional benefit to investors during estate planning because your units can be evaluated by your beneficiaries on a stepped-up basis.

Real estate investment

Similarities Between Both Structures

Beyond the above differences, UPREIT investing still shares some key similarities with traditional REITs that make it an ideal vehicle for hands-off, passive real estate investing.

  • Both of these powerful options for investing allow investors access to diversified real estate: your portfolio will no longer be overwhelmed by multi-family units or struggling commercial spaces.
  • Both of these stability-building options for investing in real estate allow you to tap into the benefits of holding property without the workload: it’s truly passive real estate investing!
  • Choosing to invest in either option will reduce your risk factors as a real estate investor by providing you access to consistent, stable income—rather than relying on whatever you get month to month!

For investors who have had enough of the grind when it comes to ‘traditional’ real estate investing, either option will help you escape and breathe a sigh of relief. However, the UPREIT structure offers investors access to a bevy of additional elite benefits that make investigating them worthwhile.

Any Questions?

As investors ourselves, we’re excited about the incredible potential we already see from the single-family properties within the Peak Housing REIT—and it’s only projected to grow!

If you’re an investor that’s already feeling worn out from years of dealing with the ‘real estate investing rat race,’ we’re so eager to show you the realities of true financial freedom with the right UPREIT!

If you have any further questions about whether UPREIT investing is the right path for you, reach out to us!