Non-Traded REIT Vs. REIT

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Real estate is often considered a relatively reliable investment option. Real estate investment trusts (REITs) can provide an investor with income and portfolio diversification. However, whether you choose to invest in a non-traded REIT or a publicly-traded REIT depends on your personal investment strategy.

REIT

  • A real estate investment trust is an company that invests in different kinds of real estate or real estate-related assets. In order to be classified as an REIT, a company must distribute 90 percent of its income in the form of dividends and have at least 75 percent of its assets invested in real estate. Shopping centers, office buildings, hotels and mortgages secured by real estate are some of the most common REIT investments.

Non-Traded REITs

  • A non traded REIT is very similar to a publicly-traded REIT. Both types of investments offer a relatively predictable dividend cash flow and invest in the same general types of real estate. The primary difference between the two is that non-traded REITs are not available on any exchanges, and are therefore not subject to the same market volatility of publicly-traded REITs. Because non-traded REITs are not traded publicly, the primary outlet for selling shares is the REIT itself, making them more difficult to trade. As a result, most non-trade REITs include repurchase agreements to accommodate investors who want to sell back their shares.

Publicly-Traded REITS

  • Publicly-traded REITs can be found on most major exchanges. While offering the same income as non-traded REITs, they are also subject to market volatility. This volatility is often the result of changes in the value of alternative investment options, as opposed to changes in the value of commercial real estate, which is usually very subtle. REITs that are publicly traded must be registered with the U.S. Securities and Exchange Commission.

Options

  • Whether you decide to invest in a non-traded REIT or a publicly-traded REIT may depend on your needs as an investor. If you want flexibility and liquidity, you may want to consider a publicly-traded REIT. If, however, you want to avoid market risk, a non-traded REIT may be a better option. To find out about purchasing non-traded REIT shares you can contact the investment trust in which you are interested. A broker or mutual fund adviser can assist you in purchasing publicly-traded REIT shares.

References

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