Real estate investment trusts (REITs) are popular because they allow investors to own shares in real estate portfolios without directly managing properties. But not all REITs are created equal. Among the lesser-known types are non traded REITs — a category that offers potential benefits but also significant drawbacks.
Before adding them to your portfolio, it’s important to understand how non traded REITs work, what makes them different from publicly traded ones, and the risks involved.
What Are Non Traded REITs?
A non traded REIT (Real Estate Investment Trust) is a real estate investment vehicle that isn’t listed on public stock exchanges. Like traditional REITs, they pool investor money to buy, manage, and operate income-producing real estate such as:
- Office buildings
- Apartment complexes
- Shopping centers
- Hotels
- Industrial warehouses
The difference? While publicly traded REITs can be bought and sold on stock markets, non traded REITs are sold through brokers or financial advisors and often have limited liquidity.
How Non Traded REITs Work
- Purchase: Investors typically buy shares through a broker-dealer or advisor.
- Holding Period: Non traded REITs usually have holding periods of 7–10 years before offering redemption or liquidation options.
- Distributions: Investors may receive dividends, often paid monthly or quarterly, based on rental income from the underlying properties.
- Exit: At the end of the holding period, the REIT may list on a public exchange or liquidate assets to return capital to investors.
Pros of Investing in Non Traded REITs
1. Access to Commercial Real Estate
They allow individual investors to participate in large-scale real estate projects normally reserved for institutional players.
2. Income Potential
Non traded REITs often focus on stable rental income, providing regular dividends.
3. Portfolio Diversification
Because they aren’t correlated with stock market movements, they can offer some diversification benefits.
4. Professional Management
Properties are managed by experienced firms, eliminating the need for hands-on involvement.
Cons and Risks of Non Traded REITs
1. Illiquidity
Unlike publicly traded REITs, you can’t sell your shares easily. Your money is often tied up for years.
2. High Fees
Many non traded REITs charge steep upfront fees (sometimes 8–12%), which reduces the amount of your money actually invested.
3. Valuation Uncertainty
Because shares aren’t traded on an exchange, it’s harder to know the real-time value of your investment.
4. Limited Transparency
Non traded REITs may provide fewer disclosures compared to public REITs, making it difficult to assess performance.
5. Market Risk Still Applies
Even though they aren’t traded, the underlying properties are still subject to economic cycles, vacancies, and changing market conditions.
Who Should Consider Non Traded REITs?
Non traded REITs may be suitable for:
- Long-term investors who can tie up money for 7–10 years.
- Income-seekers looking for regular dividends.
- Diversifiers who want exposure to real estate outside of stock market volatility.
They may not be suitable for:
- Investors needing quick access to cash.
- Those sensitive to high upfront fees.
- Beginners who prefer transparent, flexible investments.
Alternatives to Non Traded REITs
If the risks seem too high, here are some alternatives:
- Publicly Traded REITs: More liquid, transparent, and widely available.
- Real Estate Mutual Funds or ETFs: Diversified exposure with flexibility.
- Real Estate Crowdfunding Platforms: Lower minimum investments with project-specific opportunities.
- Direct Real Estate Investment: Buying and managing property yourself.
FAQs About Non Traded REITs
1. Are non traded REITs safe?
They carry risks like illiquidity, high fees, and market fluctuations. While not unsafe by default, they aren’t suitable for every investor.
2. How long do I have to hold a non traded REIT?
Typically 7–10 years, though some may offer limited redemption programs.
3. Do non traded REITs pay dividends?
Yes, many distribute monthly or quarterly dividends based on rental income.
4. What’s the minimum investment?
Often $1,000–$5,000, though some brokers set higher minimums.
5. Why do advisors recommend them if they have high fees?
Brokers may earn commissions for selling non traded REITs, which is why investors should always review terms carefully.
Key Takeaways
- Non traded REITs are real estate investment trusts not listed on public stock exchanges.
- Pros include income potential, diversification, and access to commercial real estate.
- Cons include illiquidity, high fees, limited transparency, and uncertain valuations.
- Best for long-term, income-focused investors who don’t need liquidity.
- Alternatives like traded REITs, ETFs, and crowdfunding may provide more flexibility.
✅ Before investing in non traded REITs, weigh the income potential against the lack of liquidity and higher costs. For some investors, they can be a useful diversification tool — but they’re not a one-size-fits-all solution.