A non-traded real estate investment trust, also known as a REIT, is a product that takes your money and invests it in real estate. Promoters say this rental income will be sufficient for you to get a sizable annual return, and, according to the common sales pitch, after seven to ten years the property will be sold and you will get your money back. You might even get more if the property is sold for a profit.
In order to buy a non-traded REIT, you have to pay commissions and fees that often land in the double digits and can be difficult to identify. If you want to sell – you can’t. These investments don’t have a market, and they aren’t traded. This means you have to wait for the promoter to sell the underlying real estate and return your money to you. It can take a decade or more before you see your investment again.
If real estate exposure is what you’re looking for in your investment portfolio, mutual funds provide investors with:
While brokers and advisers may have a good faith basis for recommending that a client diversify their holdings with some real estate exposure, in our opinion, they cannot justify a recommendation to purchase a non-traded REIT. Clients’ interests are better served by investments in low-cost and low-liquid funds managed by individuals with expertise and incentives to construct diversified portfolios of the best real estate investments.