As an investor, you’re likely looking for ways to generate passive income. Real estate is a classic path, but the options can be overwhelming. Two popular choices for hands-off real estate investing are private lending funds and publicly-traded Real Estate Investment Trusts (REITs). Both can put money in your pocket without you having to be a landlord, but they operate in fundamentally different ways.
I often get asked which is "better." The honest answer is, it depends entirely on your goals. Let's break down the mechanics of each so you can make an informed decision for your own portfolio.
The World of REITs: Liquid, Broad, and Market-Tied
A REIT is essentially a company that owns, operates, or finances income-generating real estate. When you buy a share in a REIT, you're buying a piece of a massive portfolio that might include everything from office buildings and apartment complexes to shopping malls and data centers.
The primary appeal of REITs is liquidity. You can buy and sell them on major stock exchanges just like a share of Apple or Ford. This ease of access is a significant advantage. They also offer instant diversification. With one purchase, you can have fractional ownership in hundreds of properties across various markets.
However, this liquidity comes with a significant trade-off: correlation to the stock market. When the broader market swoons, REITs tend to get pulled down with it, regardless of how well the underlying properties are performing. We saw this during the initial COVID-19 panic and in other market downturns. Your "real estate" investment suddenly starts acting a lot like a tech stock. Furthermore, the dividend yields on REITs are typically in the 4-8% range. It's a respectable return, but often lower than what can be achieved through more direct investment methods.
The Private Lending Alternative: Direct, High-Yield, and Uncorrelated
Private lending, especially in a fund structure, is a different animal altogether. Instead of buying shares in a massive, publicly-traded company, you are pooling your capital with other investors to issue loans directly to real estate professionals. At Harvey Capital, for instance, our Income Fund (Harvey Capital Funding I LP) lends money to experienced house flippers who need short-term capital for their projects.
The most significant advantage here is a lack of correlation to the public markets.Our fund's performance is tied to the underlying real estate loans, not the whims of Wall Street. A bad day for the S&P 500 doesn't change the fact that our loan is secured by a tangible property at a conservative loan-to-value ratio. This creates a powerful diversification tool for a portfolio.
This structure also allows for significantly higher yields. In 2025, our first year of operation, Harvey Capital Funding I LP delivered an 18.36% annualized return to our investors.This is possible because we are the direct lender, cutting out the layers of fees and overhead associated with large public companies. Our investors benefit from an 82/18 profit split, and we charge no assets under management (AUM) fees.
Transparency is another key difference. With a REIT, you own a slice of a vast, often opaque portfolio. In our fund, you know exactly what you own. We provide our limited partners with a detailed breakdown of every loan in the portfolio, including the property address, loan amount, and appraised value. Our weighted-average after-repair loan-to-value (ARLTV) is a conservative 66.52%, meaning there is a substantial equity cushion in every deal.
A Head-to-Head Comparison
| Feature | Private Lending Fund (e.g., Harvey Capital) | Publicly-Traded REIT |
|---|---|---|
| Typical Yield | 10-18% | 4-8% |
| Liquidity | Low (Capital locked for 9-12 month loan terms) | High (Tradable on stock exchanges) |
| Market Correlation | Very Low | High |
| Transparency | High (Direct view of underlying loan portfolio) | Low (Portfolio of hundreds of properties) |
| Collateral | Direct lien on a specific property | Indirect ownership of a large portfolio |
| Management | Smaller, more direct, GP invests alongside LPs | Large, institutional, potential for misalignment |
It’s Not a Competition, It’s a Complement
So, which is better? Neither. They are different tools for different jobs.
REITs can be an excellent choice if you prioritize daily liquidity and want broad, passive exposure to the real estate market. They fit well within the public equity portion of a diversified portfolio.
A private lending fund serves a different purpose. It’s for the investor seeking higher, non-correlated income who is willing to trade daily liquidity for it. It’s an alternative investment that behaves differently from stocks and bonds, providing true diversification. It’s for the investor who appreciates the security of a direct lien on a property and the alignment of interests that comes from a manager investing their own capital right alongside the LPs.
At Harvey Capital, we’ve had zero principal losses on the lending side because of our disciplined underwriting and focus on experienced borrowers. We believe this model offers a compelling risk-adjusted return for the income-focused part of an investor's portfolio.
You don’t have to choose one or the other. Many sophisticated investors use both. They use REITs for their liquid, public-market allocation and a private lending fund to build a robust, high-yield income stream that insulates a portion of their portfolio from stock market volatility.