What Makes Non-Traded REITs Different and Potentially Unsuitable?

As FINRA lawyers, we've cautioned you before about the potential unsuitability of non-traded REITs, but many people are still confused about why these investments are risky and how they differ from exchange-traded REITs. Although the simple answer is that non-traded REITs are not traded on a national securities exchange while exchange-traded REITs are, there is a little more to it than that.

How Are Exchange-Traded REITs and Non-Traded REITs Similar?

Both types of REITs are similar in that they both, of course, are investments in real estate, and they must be registered with the Securities and Exchange Commission (SEC). Both types of REITs also are required by the IRS to pay out distributions on taxable income.

How Are Exchange-Traded REITs and Non-Traded REITs Different?

Exchange-traded REITs are traded on a national exchange, which makes them fairly easy to buy and sell. Non-traded REITs, on the other hand, do not trade on a national exchange and usually come with strict restrictions on redeeming shares, which may only be redeemable below the current price or the purchase price. When it comes to returns, exchange-traded REITs are based on the shares' trading prices on the exchange. Once liquidated, non-traded REITs may return more or less than the original value, and that value may be extremely difficult for investors to determine.

Additionally, fees can be very different for the two types of REITs. Typically, non-traded REITs are accompanied by additional front-end fees that can add up to quite a bit - maybe even up to 15%.
As you can see, REIT investments get complex fast, and they may not be suitable investments for every investor. Be sure to always carefully research REITs and understand what you're putting your money into and how you'll be paid.

The FINRA lawyers with the Law Firm of Meyer Wilson represent clients nationwide who have sustained losses after stockbroker misconduct, securities fraud, or REIT scams. Give us a call today at 1-866-8-BROKER (1-866-827-6537) to schedule a completely free consultation with an investment fraud attorney who can help you on the way to recovering your losses.