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Non-Traded REITs: Look Before You Leap

Non-traded REITs have become popular investment vehicles in a relatively short time span, due in part to aggressive marketing tactics by some brokers who, in turn, reap the benefits via big commissions and/or fees. For many retail investors, however, non-traded REITs are not all that they may seem.

Non-traded REITs do not trade on a stock exchange. That makes them an illiquid investment, one that investors can’t get rid of even if they want to. The majority of non-traded REITs impose a specific time frame in which investors are allowed to actually redeem their REIT shares. In many cases, this is seven years. The lack of publicly available analysis on non-traded REIT is yet another common complaint about the non-traded REIT industry.

In addition, non-traded REITs are not necessarily a consistent and reliable source of income. Despite assurances by brokers who sell them, a number of non-traded REITs have recently eliminated their dividends to investors or shut down or drastically limited their share repurchase programs.

REIT Wrecks, a Web site that provide in-depth analysis of the REIT market, has created an interesting – and revealing – chart that compares the dividends, leverage and fees of non-traded REITs. As noted, a number of REITs have entered into troubled and/or potentially troubled waters. Among them: Behringer Harvard MultiFamily I, Cole Credit Property Trust III, KBS I, Inland American, Cornerstone Growth & Income, among others.

The bottom line: When considering a non-traded REIT as part of your investment portfolio, think long and hard. The cons may far exceed any potential rewards.

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