How to Protect Yourself When It Comes to Non-Traded REITs

Not every REIT is an investment scam, but even legitimate REITs should be approached with caution. This is especially the case when it comes to non-traded REITs, which do not trade on a national securities exchange. If you are interested in investing in REITs, there are just a few steps you should take before handing over your money:

• Understand the valuation and liquidity issues. Since non-traded REITs do not trade on a national exchange, they can be very difficult to sell, and the share price may be difficult to determine. Be sure to read the prospectus carefully and ask questions.
• Be aware of fees. A lot of non-traded REITs will include various fees that you may not be aware of, and they can add up fast. Front-end fees could be as much as 15%, which reduces the amount of capital actually available to be invested.
• Understand the tax consequences of the REIT. Taxes on REITs don't always work the way you suspect. Consider speaking with your tax advisor about it before you invest.
• Research the borrowing policies for the REIT. Some REITs may be funding distributions with cash that does not actually come from real estate sales, but from investor capital and other sources. The REIT could even allow borrowing beyond 100% of net assets. Additionally, depending on the REIT, distributions could be suspended or stopped.
• Understand the redemption restrictions. Many non-traded REITs have strict limitations on when shares can be redeemed. Be sure to take this into account when you are looking at your portfolio and financial needs.

In general, just remember that it pays to do careful research before putting your money into any investment. Although REITs are often painted in a high-yield and low-risk light, they are by far more complex than some sales literature would have you believe and not suitable for every investor.

If you believe that your broker or financial advisor recommended an unsuitable REIT investment, contact an experienced FINRA lawyer at 1-866-8-BROKER (1-866-827-6537) for a FREE legal consultation to talk about your circumstances. The Law Firm of Meyer Wilson has successfully represented hundreds of clients nationwide in stockbroker mediation, arbitration, and litigation.

If you'd like to learn more about who we are and when you might need us, take a look at our FREE book Five Signs of Investment Fraud ...And What to Do if it's Happened to You.