Real estate investment trusts (REITs) allow investors to gain exposure to real estate without buying and managing properties directly. While many investors are familiar with publicly traded REITs, non traded REITs operate differently and come with unique benefits and risks.
Understanding how non traded REITs work can help investors determine whether they fit their long-term financial goals and risk tolerance.
Key Takeaways
- Non traded REITs are not listed on public stock exchanges.
- They may provide income potential and access to commercial real estate investments.
- Major risks include limited liquidity, high fees, and valuation challenges.
- They may appeal to long-term investors but may not fit every portfolio.
- Investors should review fees, holding periods, and redemption policies carefully.
What Are Non Traded REITs?
Non traded REITs are real estate investment trusts that raise money from investors but do not trade on public exchanges.
Like other REITs, they typically invest in income-producing real estate such as:
- Apartment communities
- Office buildings
- Shopping centers
- Hotels
- Healthcare facilities
- Industrial properties
- Warehouses
Unlike publicly traded REITs, investors generally purchase shares through brokers or financial advisors rather than stock exchanges.
How Non Traded REITs Work
The process typically looks like this:
Purchase
Investors buy shares through:
- Financial advisors
- Broker-dealers
- Investment firms
Holding Period
Many non traded REITs require long investment periods that often range from 5–10 years.
Income Distributions
Investors may receive periodic distributions generated from:
- Rental income
- Property operations
- Asset sales
Exit Strategy
The REIT eventually may:
- List publicly on an exchange
- Sell properties
- Liquidate the fund
- Offer share redemption programs
Non Traded REITs vs Public REITs
| Feature | Non Traded REITs | Publicly Traded REITs |
|---|---|---|
| Exchange listing | No | Yes |
| Liquidity | Limited | High |
| Daily price changes | No | Yes |
| Transparency | Moderate | Higher |
| Fees | Often higher | Usually lower |
| Holding period | Long-term | Flexible |
Benefits of Non Traded REITs
Access to Large Real Estate Projects
Investors can gain exposure to large commercial assets that might otherwise require substantial capital.
Potential Income
Many non traded REITs focus on producing recurring cash flow through rental operations.
Reduced Day-to-Day Market Volatility
Because shares do not trade daily, investors may see fewer short-term price swings.
Professional Management
Experienced teams handle:
- Property acquisition
- Leasing
- Maintenance
- Asset management
Risks of Non Traded REITs
Limited Liquidity
One of the largest disadvantages is the inability to quickly sell shares.
Investors may need to wait years before accessing their money.
High Fees
Potential costs may include:
- Upfront sales commissions
- Management fees
- Organizational expenses
- Performance fees
High costs can reduce overall returns.
Valuation Challenges
Since shares do not trade on public exchanges, determining market value can be difficult.
Limited Transparency
Some offerings may provide less frequent reporting than publicly traded investments.
Real Estate Market Risk
Even though shares do not trade publicly, the underlying properties remain vulnerable to:
- Vacancies
- Interest rate changes
- Economic downturns
- Falling property values
Who Should Consider Non Traded REITs?
Non traded REITs may fit:
- Long-term investors
- Income-focused investors
- Investors seeking additional diversification
They may be less suitable for:
- Investors needing liquidity
- Short-term investors
- Investors uncomfortable with high fees
Alternatives to Non Traded REITs
Publicly Traded REITs
Offer greater liquidity and easier access.
Real Estate ETFs
Provide broad diversification with lower costs.
Real Estate Crowdfunding
Allows investors to participate in individual projects.
Direct Real Estate Ownership
Provides greater control but requires active management.
Frequently Asked Questions
Are non traded REITs good investments?
They can be appropriate for some investors, particularly those seeking long-term income and diversification, but they also carry meaningful risks.
Why do non traded REITs have high fees?
Sales commissions, management costs, and organizational expenses may increase total fees.
Can I sell a non traded REIT anytime?
Usually not. Many investments have holding periods and limited redemption options.
Do non traded REITs pay dividends?
Many distribute income periodically, although payments are not guaranteed.
What is the biggest risk?
Illiquidity is often considered one of the largest risks because investors may not be able to access their money quickly.
Final Thoughts
Non traded REITs provide investors with another way to access real estate without directly purchasing properties. However, the income potential should be weighed against limited liquidity, fees, and valuation challenges.
Understanding how non traded REITs work—and comparing them with alternatives—can help investors make better long-term decisions.