Real estate has long been one of the most reliable wealth-building strategies. For investors in Canada, the choice often comes down to two popular vehicles: publicly traded Real Estate Investment Trusts (REITs) and private real estate funds. While both provide exposure to property markets, they differ in structure, liquidity, accessibility, and return potential.
This article breaks down the differences between REITs and private real estate funds so you can decide which option best fits your investment strategy.
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What Are REITs?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. In Canada, REITs trade on public stock exchanges, much like regular stocks.
Key features of REITs:
- Publicly traded – easy to buy and sell through your brokerage account.
- Regulated – REITs must distribute most of their taxable income as dividends to shareholders.
- Diversified portfolios – many REITs hold multiple property types (residential, commercial, industrial, or retail).
- Accessible – investors can start with just a few hundred dollars.
For example, a Canadian retail investor could buy units of a REIT listed on the Toronto Stock Exchange (TSX) and instantly gain exposure to billions of dollars in commercial properties.
What Are Private Real Estate Funds?
Private real estate funds are pooled investments in property that are not traded on public markets. These funds may be structured as private REITs, limited partnerships, or closed-end funds.
Key features of private funds:
- Illiquid – investors usually commit capital for years, with limited redemption opportunities.
- Accredited investor requirements – in Canada, most private funds are restricted to high-net-worth individuals or institutional investors who meet income or asset thresholds set by the Canadian Securities Administrators (CSA).
- Higher minimum investments – often starting at $25,000 to $100,000 or more.
- Potentially higher returns – private funds can access deals not available to the public, including development projects or large commercial properties.
Private funds generally appeal to investors seeking long-term growth and income, with the ability to accept limited liquidity.
REITs vs. Private Real Estate Funds: A Side-by-Side Comparison
| Feature | Public REITs | Private Real Estate Funds |
|---|---|---|
| Accessibility | Open to all investors through stock exchanges. | Typically limited to accredited investors. |
| Liquidity | Highly liquid — can be bought and sold daily. | Low liquidity — capital often locked in for years. |
| Minimum Investment | As low as the price of one share or ETF unit. | Usually $25,000–$100,000+. |
| Transparency | Regulated, with public financial reporting. | Less transparency; investors rely on fund disclosures. |
| Diversification | Broad exposure across property sectors. | Often focused on specific markets or strategies. |
| Return Potential | Moderate, tied to market cycles and dividend yields. | Potentially higher returns with more risk. |
| Volatility | Priced daily; subject to stock market swings. | Less correlated with stock markets; valuations updated periodically. |
| Fees | Typically lower; ETFs and REITs may charge management fees under 1%. | Higher fees (management, performance, acquisition). |
Benefits of Investing in REITs
- Liquidity and flexibility – buy or sell instantly on public markets.
- Low entry barrier – no large upfront commitment required.
- Transparency and regulation – audited financials and market oversight.
- Steady dividends – many REITs pay consistent income.
For investors seeking income and ease of access, REITs are often the better fit.
Benefits of Investing in Private Real Estate Funds
- Access to exclusive opportunities – private funds may own properties not available to public REITs.
- Potential for higher returns – especially in niche markets like development projects or distressed properties.
- Reduced stock market correlation – less daily volatility compared to publicly traded REITs.
- Active management – fund managers may pursue strategies to maximize returns beyond rent collection.
Private funds are better suited to long-term investors with higher capital and less need for liquidity.
Risks to Consider
- REIT risks: Market volatility, interest rate sensitivity, and lower growth potential.
- Private fund risks: Illiquidity, higher fees, less transparency, and the possibility of capital loss if projects underperform.
Both require due diligence. Investors should carefully review offering documents, management teams, and historical performance before committing capital.
When to Choose REITs vs. Private Real Estate Funds
- Choose REITs if:
- You want liquidity and flexibility.
- You’re starting with a smaller investment.
- You prefer lower risk and regulatory oversight.
- Choose Private Real Estate Funds if:
- You are an accredited investor with significant capital.
- You can commit to long-term, illiquid investments.
- You’re seeking higher potential returns and diversification beyond public markets.
Both REITs and private real estate funds play important roles in Canadian investment portfolios. REITs offer accessibility, liquidity, and transparency, making them ideal for most individual investors. Private funds, while less accessible and riskier, can provide unique opportunities and higher returns for those with greater capital and risk tolerance.
The right choice depends on your financial goals, liquidity needs, and risk appetite. Many experienced investors use both REITs and private funds to balance short-term flexibility with long-term growth potential.