FINRA Arbitration Lawyers Explain REIT Scams

For many investors, real estate investments seem very desirable. Investment in a real estate investment trust (REIT) seems like an easy way to get started, but it can be fraught with risks if you don't understand how a REIT works or what it invests in -- and most people find the research required to find out is remarkably frustrating. The truth is that there are fraudsters out there right now who are using this confusion to draw people into REIT scams and pocket investors' cash.

What is a REIT?

A real estate investment trust (REIT) is a security that sells like a stock, but invests in large-scale real estate. A corporation will own and manage a portfolio of properties or mortgages, and investors can buy shares. In this way, the average investor is able to invest in large-scale real estate projects that would otherwise be out of reach, but without the headaches of actually managing that property.

Why Are Non-Traded REITs Risky?

Sometimes non-traded REITs are pitched as being an easy way for an individual investor to get into real estate investment. The person pitching the investment may tell you that you'll earn a higher dividend without worrying about the volatility of the stock market.

Unfortunately, many people are drawn into REIT scams with these kinds of pitches without understanding that non-traded REITs can still be very volatile -- you simply just don't see the fluctuations. They are illiquid and generally meant to be a long-term investment, which means they can be unsuitable investments for many investors, especially those who are approaching retirement.

Additionally, non-traded REITs are also rife with fees and commissions. The upfront fees could mean giving up 17 cents on every dollar you invest, and there may also be ongoing fees for leasing, acquisition, and management.

If that doesn't make you think twice, consider this: many non-traded REITs don't even acquire property until AFTER the initial offering. In those situations, early dividends are actually paid to you from investors' money -- NOT from real estate activities.

The securities arbitration attorneys with the Law Firm of Meyer Wilson would like to speak with you about your investment misconduct case at 1-866-8-BROKER (866-827-6537). We are knowledgeable and experienced FINRA arbitration lawyers who represent stockbroker mediation, arbitration, and litigation cases nationwide. If you're unsure if you need to speak to an attorney, we recommend you take a look instead at our FREE book Five Signs of Investment Fraud... And What to Do if it's Happened to You.