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.
But, how does this particular style of real estate investing work? From a mortgage REIT to a timberland REIT, office REIT, healthcare REITs and more, some of these funds access the real estate market but are not traded openly.
In fact, non-traded REITs may provide stability and more predictable returns than a public REIT. Instead of being traded on a major stock exchange, shares of non-traded REITs are purchased through a real estate crowdfunding platform.
Benzinga's Favorite Non-Traded REITs
- Best for Growth: Apartment Growth REIT
- Best for Dividends: 1st Streit Office
- Best for Commercial Real Estate: Growth & Income REIT
- Best for Diversification: RealtyMogul Income REIT
- Best for Accessing the Self Storage Market: SmartStop Self Storage REIT
Best for Growth: Apartment Growth REIT
The RealtyMogul Apartment Growth REIT is a non-traded REIT that invests capital in apartment complexes mostly located in what are considered to be resilient markets that can offer both current income potential and growth for the future. The Apartment Growth REIT has made quarterly distributions equating to 4.5% annualized based on purchase price as it seeks to realize as much capital appreciation as possible, generally reaching those goals through renovation and the repositioning of those properties.
Pros
- The fund focuses on apartment complexes to improve both its opportunity to increase value but also to collect rents
- Because the fund focuses on resilient markets, value losses are less common than they would otherwise be
Cons
- Investing in only one type of property could cause issues for the fund if the rental market shifts
Best for Dividends: 1st Streit Office
1st Streit Office is the current non-traded REIT offering of Streitwise, which is comprised of 2 Class A commercial properties along with properties that could be added in the future. These properties include the Allied Solutions Building, a $32 million mixed-use property in Carmel, Indiana, just outside Indianapolis and Streitwise Plaza, a 290,000 square foot office park in Sunset Hills, just outside St. Louis.
Pros
- The fund owns mixed-use properties, which are, by nature, diverse
- The fund’s properties are located in thriving suburban areas
Cons
- The fund’s portfolio is relatively small and may prove to be a slow grower
Best for Commercial Real Estate: Growth & Income REIT
- DetailsInvestmentsecurely through Growth & Income REIT's website
The Growth & Income REIT is a fund that hopes to make both equity and debt investments in the commercial real estate sector that will leverage the valuation and growth potential of key U.S. markets, with a focus on diversified exposure, capital appreciation, income potential and resiliency.
Pros
- The fund focuses on increasing value, meaning that the portfolio is always growing
- The commercial real estate sector tends to be robust most of the time
Cons
- Because the fund invests in both equity and debt, the debt investments could prove difficult to turn around
Best for Diversification: RealtyMogul Income REIT
- DetailsInvestmentsecurely through RealtyMogul Income REIT's website
The RealtyMogul Income REIT is a non-traded REIT that makes equity and debt investments in diverse commercial real estate properties.
The REIT prefers to focus on providing monthly income to investors through diligent work on the back-end that can provide higher returns for all.
Historically, the REIT has paid annualized cash between 6% and 8% for well over 6 years, distributed nearly $30 million to investors and purchased over $350 million in assets.
Pros
- The fund focuses on issuing dividend payments to investors, meaning that you could potentially see monthly income from this investment
- Because annualized cash figures are so high, investors can buy in with a bit more confidence
Cons
- Because the REIT is not traded, it may not be accessible to all those who wish to invest, irrespective of their cash position
Best for Accessing the Self Storage Market: SmartStop Self Storage REIT
The SmartStop Self Storage REIT bills itself as a “technology-driven” and self-managed REIT that is fully integrated with its operations team and manages over 15 million square feet of storage space in North America.
Pros
- The fund is self-managed and leverages technology to give investors the best possible returns
- The fund has a massive portfolio that is, in itself, diverse
Cons
- The self storage sector, while robust and plentiful, is the only place where this REIT invests, meaning it might not be as diverse as you would like
How Are Non-Traded REITs Regulated?
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. These portfolios offer the REIT sector a unique business model that could include shopping malls, retail centers, data centers, office buildings and more, diversifying themselves by their very nature.
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
- A potential track record for a high dividend yield
- Significant tax benefits
- Equity ownership of real property
- Diversified portfolio to increase dividend income
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
Invest in REITs With Wisdom
When you are investing in REITs, you are buying into retail income, investment strategies created by an experienced investment manager and a property type that suits your strategy. You can invest based on how interest rates are changing, check share prices every day and look at a REIT structure that you feel will help you guarantee future income or plan for retirement.
Frequently Asked Questions
What are the risks of non-traded REITs?
Non-traded REITs can provide returns and stability, but a major risk is that they can remain illiquid for quite some time.
Do non-traded REITs pay dividends?
Dividends for non-traded REITs depend on the REIT in which you have invested and the guidelines of that program. Dividends are not guaranteed in most cases.
How long do non-traded REITs last?
Non-traded REITs can remain illiquid for many years at a time, meaning that capital will appreciate while, at the same time, it is not paying back the investor on a regular basis.
