Best Non-Traded REITs

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Contributor, Benzinga
Updated: May 16, 2022

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Benzinga's Favorite Non-Traded REITs

  • Apartment Growth REIT
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    Best For
    Growth
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  • 1st Streit Office
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    Best For
    High Dividends
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  • Growth and Income REIT
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    Best For
    Commercial Real Estate
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  • Income REIT
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    Best For
    Diversification
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A real estate investment trust (REIT) is a company that owns, operates or finances income-generating real estate. The most common type of REIT is an equity REIT. An equity REIT uses a combination of its own capital and investor contributions to own and operate large commercial real estate portfolios, which are usually spread across multiple geographic markets. 

The real estate in equity REIT portfolios is carefully selected for its ability to generate net income from collected rents, which is distributed to investors (typically as a quarterly dividend). Secondly, REITs can make money when properties in the portfolio appreciate and are then sold, after which time those revenues are also distributed to investors. 

Most REITs are publicly traded, and the opportunity to generate passive income secured by real estate makes them one of the most popular alternative investments in the real estate asset class. However, the fact that these REITs are publicly traded leaves them vulnerable to stock market volatility. 

However, another type of REIT may provide stability and more predictable returns than a public REIT:  a non-traded REIT. Instead of being traded on a major stock exchange, shares of non-traded REITs are purchased through a real estate crowdfunding platform.

How Are Non-Traded REITs Regulated?

In spite of the fact that non-traded REITs are not listed on any public exchanges, they are still subject to several layers of government regulation. First of all, they are still required to create an investment prospectus and submit it to the U.S. Securities and Exchange Commission (SEC). Additionally, non-traded REITs are still responsible for complying with the same regulatory report filing requirements of publicly traded REITs. Finally, non-traded REITs are still required by the IRS to pay 90% of any taxable income generated by the REIT to shareholders. 

All these regulations are designed to protect the interest of shareholders and make sure the REIT is being operated properly. In short, an individual REIT’s “non-traded” or “private” status does not release it from an obligation to act fairly, ethically and transparently with the investor’s hard-earned money. 

Pros and Cons of Non-Traded REITs

As with any investment opportunity, non-traded REITs have a number of different pros and cons. On the pro side, non-traded REITs offer the following potential benefits:

  • High potential payouts
  • Significant tax benefits
  • Equity ownership of real property
  • Diversified portfolio

On the con side, non-traded REITs have potential drawbacks, including:

  • Less regulatory oversight
  • High minimum investment
  • Lack of liquidity for shares-no secondary market
  • Long hold period

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