Understanding Non Traded REITs

Non-traded REITs, also known as private REITs, are a type of real estate investment trust that don't trade on public stock exchanges.

They typically offer shares to individual investors in a private offering, often with a minimum investment requirement.

Non-traded REITs are often structured as limited partnerships, which can provide tax benefits to investors.

Investors in non-traded REITs can expect to receive regular income distributions, often quarterly, which can be a major draw for those seeking steady returns.

These distributions are usually made from the REIT's cash flow, which can be generated from rental income, property sales, or other sources.

Non-traded REITs typically have a minimum investment requirement, which can range from $5,000 to $50,000 or more, depending on the REIT.

A non-traded REIT is a type of real estate investment trust that doesn't offer shares for public trade on an exchange. There are two main types: private REITs and public non-listed REITs (PNLRs).

Private REITs are non-traded, meaning you can't buy and sell shares on a public exchange. Investments are typically made through private placements or direct solicitation of investors.

These REITs often have stringent holding requirements, requiring investors to hold their shares for five or more years. Limited or no redemption programs may be available, and sales may be at a discount to the REIT's value if offered.

Only accredited investors are permitted to invest in private REITs, which typically means meeting certain income and/or net wealth minimums. This can be a barrier for many individual investors.

Private REITs aren't required to register with the Securities Exchange Commission (SEC), which means they don't file financial reports. This reduced oversight creates substantial risk for individual investors without the resources or expertise to verify the suitability of the company.

Public non-listed REITs (PNLRs) fall between publicly traded REITs and private REITs in terms of accessibility and oversight. They don't trade on stock exchanges, but they are registered with the SEC, providing enhanced oversight and publicly accessible financial filings.

Non-traded REITs operate similarly to traded REITs, with the same business model and favorable tax treatments. They also have an obligation to return a high proportion of income back to REIT holders in the form of dividends.

Non-traded REITs must still be registered with the SEC and make regulatory filings, including quarterly and annual financial reports. This ensures transparency and accountability, even though they're not publicly listed.

Most non-traded REITs have a finite maturity date, where they have two possible alternatives: listing on a public exchange or liquidating.

Here are the three main types of REITs:

Typically, publicly traded and private REITs are either equity or mortgage REITs, while non-traded REITs are generally a hybrid, predominantly focused on equity strategies.

Non-traded REITs offer a range of benefits to investors, making them an attractive option for those looking to diversify their portfolios.

One of the key advantages of non-traded REITs is their accessibility. With investment minimums as low as $1,000-$2,500, most investors can get started without requiring a large capital outlay.

Non-traded REITs are also regulated by the SEC, which ensures that financial information is transparent and readily available. This transparency is further reinforced by the requirement to submit financial disclosures, including audited annual filings, to the SEC.

Another benefit of non-traded REITs is their low volatility. Unlike publicly traded REITs, which are subject to daily market fluctuations, non-traded REITs typically value their assets on a monthly basis, resulting in lower volatility.

Non-traded REITs can also provide periodic liquidity, with investors able to sell their shares at NAV (net asset value) through quarterly share repurchases, typically up to 5% of the NAV of the fund.

In terms of tax reporting, non-traded REITs issue a Form 1099, which is simpler to deal with than the Schedule K-1 typically provided in private limited partnership structures.

Here's a summary of the benefits of non-traded REITs:

Non-traded REITs can be a bit of a challenge to get into, especially for those who aren't accredited investors.

Private REITs typically have the highest minimum investment amount, ranging from $25,000 to $100,000, making them inaccessible to most investors.

Publicly registered non-traded REITs, on the other hand, are generally available to non-accredited investors and often have lower minimum investment requirements.

Retail investors tend to favor publicly traded REITs, as they're open to all and usually have the lowest entry point.

Publicly traded REITs can be found on investment apps like Robinhood or Fidelity, making it easier for investors to get started.

Non-traded REITs, including publicly non-traded and private REITs, are generally purchased through specialized brokers.

Both traded and non-traded REITs offer industry exposure, but they differ in terms of accessibility and investment requirements.

Non-traded REITs have a unique structure that sets them apart from publicly traded REITs. They are registered under the Securities Act of 1933, just like publicly traded REITs.

Non-traded REITs are required to file annual and periodic reports with the SEC under the Securities Exchange Act of 1934, providing transparency to investors. These reports help investors understand where their money is going.

The minimum investment amount for non-traded REITs is typically between $1,000-$2,500, which is lower than the minimum investment amount for private REITs. This makes non-traded REITs more accessible to a wider range of investors.

Here's a comparison of the key features of non-traded REITs:

There are three types of REIT structures, each with its own set of characteristics. Public Traded REITs are registered under the Securities Act of 1933 and are required to file annual and periodic reports with the SEC.

Public Traded REITs have no minimum investment amount, making them accessible to all investors. They also offer real-time liquidity through a public exchange.

Non-Traded REITs, on the other hand, have a minimum investment amount of typically $1,000-$2,500. They are also required to file annual and periodic reports with the SEC.

Non-Traded REITs offer periodic share repurchases, typically up to 5% of the net asset value (NAV) of the fund per quarter. This provides some level of liquidity for investors.

Private REITs are exempt from registration and reporting obligations. They typically require a minimum investment amount of $10,000-$25,000 and are only available to accredited investors or higher.

The following table summarizes the key characteristics of each REIT structure:

Publicly traded REITs are registered with the SEC and file regular reports that are publicly available. This helps investors understand where their money is going.

These reports are filed every few months, depending on the REIT. This level of transparency is a benefit to investors.

Private REITs, on the other hand, don't have a regular reporting requirement. They're only available to accredited investors.

Accredited investors are classified by the SEC as qualified to invest in unregistered securities. They must satisfy one or more requirements regarding asset size, governance status, income, net worth, or professional experience.

The reduced regulatory oversight of private REITs can be considered a risk. However, the frequently lower operating costs can be seen as a benefit to counter that risk.