Understanding Non-Traded REITs
Non-traded REITs (Real Estate Investment Trusts) are a special kind of REIT not listed on public stock exchanges. Perfect for those who prefer their investments not to flirt with daily market volatility, these REITs offer access to real estate assets which might be off-limits in the tradable securities world. While they don’t make headlines with flashy trading volumes, they stick to the job of managing properties and (hopefully) sending checks to their investors.
Key Characteristics
- Privacy from the Market Circus: By not being publicly traded, non-traded REITs avoid the wild price swings seen in publicly listed REITs.
- Regulatory Oversight: They still play by the rules, registering with the Securities and Exchange Commission (SEC) and making all the necessary disclosures, like that cousin who isn’t on social media but still shows up at all family gatherings.
- Tax Benefits: Following the classic REIT blueprint, these entities must distribute at least 90% of their taxable income to shareholders, making them a potentially attractive option for income-seeking investors.
Investor Considerations
- Liquidity: Trading in a non-traded REIT isn’t as easy as logging into your brokerage account. Their shares do not have the ‘sell’ button luxury, meaning liquidity is as rare as a polite political debate.
- Fees and Redemption: Exiting early can hit your wallet hard due to high redemption fees. It’s like leaving a party early but still paying for the full dinner.
- Income and Distributions: Early distributions might be heavily subsidized by borrowed funds, which is akin to powering a marathon with energy drinks—it gives you a boost but might not be sustainable.
Strategic Exit Plans
These REITs often come with a pre-planned exit strategy—either they blossom into publicly traded entities, or they liquidate. It’s the investment equivalent of “grow up and move out or we’re turning your room into a gym.”
Related Terms
- Exchange-Traded REIT: Listed on stock exchanges, these are the extroverts of the REIT world, enjoying daily trading and price discovery.
- Blind Pool Investment: This is when investors dive into a deal without knowing the pool’s depth—akin to investing in mystery boxes.
- Liquidation: The process by which a non-traded REIT sells off assets, often seen as the ‘grand finale’ of the investment.
Recommended Reading
- “Investing in REITs: Real Estate Investment Trusts” by Ralph L. Block. A comprehensive guide to understanding various types of REITs and their investment attributes.
- “The Intelligent REIT Investor” by Stephanie Krewson-Kelly and R. Brad Thomas. Learn how to analyze and invest in REITs from a position of knowledge and confidence.
Seeking to invest in a non-traded REIT is a bit like choosing a vintage wine – it promises a unique taste but needs time and might not be for everyone’s palate. Just ensure you’re ready for its storage needs and the waiting period!
