Public Non-Traded REIT Tip Sheet

These tips can help avoid some common pitfalls and misconceptions surrounding public non-traded REIT investing:

 

  • Do not put all your investments in one basket: Avoid putting too much of your nest egg in a single REIT or in multiple REITs of the same family. Older investors should be particularly cautious about investing large portions of their retirement income in non-traded REITs.

     

  • Your initial investment in a non-traded REIT is not guaranteed and may increase or decrease in value.

     

  • Do not invest solely based on distributions the non-traded REIT may currently be generating. Distributions can be suspended for a period of time or halted altogether. Unlike interest from a CD or bond, REIT distributions may be funded in part or entirely by cash from investor capital or borrowings—leveraged money that does not come from income generated by the real estate itself.

     

  • Redemption policies can change, making it extremely difficult to get money out of the non-traded REIT when you need it.

     

  • Think hard before deciding to reinvest any distributions, especially if you think you might need the money in the near future. Reinvested distributions are generally subject to the same redemption policies as other investments, which means they may be illiquid for significant periods of time.

     

  • Be wary of claims that a non-traded REIT "is about to go public." The public offering process is often lengthy and may never come to fruition; and if it does, the REIT may trade at a price that is lower than its current valuation. Your best source of information about a non-traded REIT's path to liquidity will be SEC filings made by the REIT itself, found on the SEC's EDGAR database.

     

  • Decisions about distributions, redemptions and "liquidity events" such as going public or selling property are made by the REIT that owns the actual real estate. Most non-public REITs have an investor relations department that can help answer questions about a REIT's business operations, including a REIT's redemption program. Contact the SEC if you have concerns about the REIT itself.

     

  • Think hard before investing any proceeds from one non-traded REIT into another, particularly if both REITs are being sold by the same securities firm. While this may be good for the sales representative, who is likely to make a commission on your investment, it may not be good for you.