Things To Know Before Investing In Public Non Traded REITs

Posted by Rodrigo William on September 5th, 2016

Investing in public non traded REITs in the present is a safe move because of the improved and steady status of the global real estate market. However, it is important to be well informed before making that move. 

1. The basics of REITs: listing status, redemption and front-end fees

Non-traded REITs are not listed on the national securities exchange and their secondary market is far more limited than exchange traded REITs. You can find non-traded REITs at REITbid.

Only a portion of the total shares invested in a particular REIT can be redeemed every year and there may be varying deal considerations as followed by different auction houses. 

The front end fee is usually calculated as 15% of the share price. However, the sales of compensation and other expenses cannot exceed the limit of 10%. There may additional offerings and costs involved but it does not happen all the time. 

Investing in REITs can help you get tax exemptions and would also let you enjoy financial security at varying levels.

Once you learn how to buy non traded REITs through major stock exchanges, it would become easier for you to diversify your portfolio in the real estate market.

2. The anticipated source of return

After the fundamentals of the REITs, comes the anticipated source of return. While it is more dependent on the market fluctuations in case of exchange traded REITs, it tends to be more about the value of assets in the case of non-traded REITs. To put it in other words, the latter can be expected to generate income from distributions that happen over several years and may or may not be higher than the original prices involved in the investment. But interestingly, the non-traded REITs are considered to be more static in terms of generating a steady and regular flow of income. Also, non traded REITs are safer from market risks due to the reasons stated here. 

3. The methods used for valuations

Usually, there are two main methodologies followed in the valuation process of REITs. 

a. Net investment methodology
b. Appraised value methodology

Both the methods of valuation require the REIT firms to disclose several aspects of the investment very clearly. Some examples of such required disclosures include:

Whether or not the listings are there on a security exchange.

The liquid status of the securities.

The estimated value of the assets and the investments in particular including the probable risk factors and several other areas of concern.