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What Is a Non-Traded REIT?

A non-traded REIT, or non-traded real estate investment trust, is a REIT that is not traded on the public stock exchange. Although this investment is not publicly traded, individual investors are still able to invest in such investment – and there are many benefits to doing so.

Non-traded REITS provide diversification to your portfolio, and gives you access to owning real estate. The best part of a REIT is the fact that you do not need to deal with any of the headaches typically associated with owning property.

Let’s expand on non-traded REITS in greater detail, and unpack why you should consider investing in one. 

How Does Non-Traded REIT Work?

On a high-level, a non-traded REIT is similar to a publicly traded REIT. All real estate investment trusts aggregate money from numerous investors, and use that money to purchase property. However, a non-traded REIT is not publicly traded.

Considering the fact that a non-traded REIT does not trade on a public market, the investment is less liquid than a traditional REIT. To offset the lack of liquidity, a non-traded REIT typically provides a greater rate of return to the investors. 

Who Invests in Non-Traded REITs?

There are a wide variety of investors who would invest in a non-traded REIT. Typically, investment firms will invest in a non-traded REIT.

Additionally, specific non-traded REITS are exclusive to specific brokers. Those brokers can sell shares to their customers/clients. 

How Are Non-Traded REITs Valued?

Understanding the valuation of a non-traded REIT is rather straightforward. Instead of the public market determining the value per share, or value of the REIT, a non-traded REIT has a simple math formula. 

A non-traded REIT is valued off of the net asset value, which is simply the sum of total assets minus the sum of total liabilities. You can divide the number of shares by the net asset value to get the price per share.

For example, imagine if a non-traded REIT owned $250,000,000 in assets, and had $100,000,000 in liabilities. The net asset value would be $150,000,000. 

If the same non-traded REIT has 5,000,000 shares, the price per share would be $30, or $150,000,000/5,000,000 = $30). As the non-traded REITs increase or decrease their assets or liabilities, the net asset value adjusts, as does the price per share. 

Are Non-Traded REITs Registered With SEC?

One of the most commonly asked questions is are non-traded REITS registered with SEC, or the securities and exchange commission? This answer isn’t straight forward.

There are some non-traded REITS that are registered, however, they do not necessarily need to be. 

Can You Sell Non-Traded REITs?

Selling shares of a non-traded REIT is possible, but it is not nearly as liquid. Remember, a non-traded REIT is not traded on a public market.

If you own shares of the non-traded REIT, you will have liquidity options, but it may not always be on your terms. Sometimes a broker may put a clause in place that states you must own the non-traded REIT for X number of years before selling. 

Are Non-Traded REITs Safe?

All investments come with risk, and determining if an investment is safe or not is entirely contingent on one’s risk tolerance. With that being said, a non-traded REIT isn’t the riskiest investment one could make, and is still considered conservative. 

Types of REITs

There are numerous types of REITs out there. Here are the three most common options. 

Private REITs

A private REIT is not listed on a public exchange, nor is it regulated by the SEC. A broker will sell shares of a private REIT and is typically only sold to institutional or accredited investors

Public Traded REITs

Publicly traded REITS can be bought and sold on the public stock market. These REITs are monitored by the SEC and effectively trade like shares in a publicly traded company. 

Public Non-Traded REITs

A public non-traded REIT is a blend between the above. These REITs do have regulatory obligations they must meet, but are not traded on a public market. 

Non-Traded REIT Characteristics

Lets cover some of the main characteristics of a non-traded REIT below:

  • Who May Invest: Anyone can invest in a public non-traded REIT. 
  • Minimum Investment: The minimum investment is typically around $1,000.
  • SEC Regulation: Generally speaking, a non-traded REIT is regulated by the SEC. Although there are some exceptions to that.
  • Listed / Not Listed: A non-traded REIT is not listed on the public stock exchange.
  • Information on Performance: A non-traded REIT is required to provide information regarding the performance of the REIT.
  • Liquidity of REIT: A non-traded REIT can be sold, but it is not nearly as liquid as a publicly traded REIT.

Advantages of Non-Traded REITs

There are numerous advantages to a non-traded REIT, including:

  • The price of the REIT does not change everyday! 
  • The REIT is regulated by the SEC
  • One can invest in a non-traded REIT with limited capital 
  • Provides access to owning real estate without needing to own any of the headaches associated with being a landlord 

Disadvantages of Non-Traded REITs

Disadvantages of a non-traded REIT include:

  • There are typically higher fees associated with owning a non-traded REIT
  • Although you can sell your non-traded REIT, it is not nearly as liquid as a publicly traded REIT

What Is the Difference Between Traded and Non-Traded REITs?

The main difference between a traded and non-traded REIT is the fact that a traded REIT can be bought and sold on the public exchange. This provides a great deal of liquidity and flexibility, but generally speaking, may come with lower returns. 

Invest in Real Estate Today

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Generate Passive Income — Realty Mogul

As an accredited investor, take the guess work out of real estate investments. Real estate investments often provide excellent returns. Get started with $5,000 as the minimum account value.