Originally Posted October 2017
Edited May 2024
Traded vs. Non-Traded REITS
Once you have made the decision to invest in real estate, you will want to identify specific opportunities that meet your investment goals. You have put in the time and have done your research and know that due to the instant diversification and stream of income from paying out almost all their profits each year, a Real Estate Investment Trust or “REIT” may be the right investment for you.
Just when you thought all your decisions were made, you find out that there are different types of REITs you may invest in. Ultimately, the decision comes down to your individual main goals and objectives. The guide below is intended to give you some of the information you need to decide which type of REIT is best for you.
Main Types of REITS
REITs can be public or private, traded, or non-traded. The three main types of REITs are 1) private REITs, 2) public non-traded REITs, and 3) publicly traded REITs. Each type has distinct characteristics and its own set of advantages and disadvantages.
1. Private REITs
Not SEC Registered: Private REITs are not registered with the Securities and Exchange Commission (the “SEC”) and not regulated by the SEC.
Not Listed: Shares of private REITs are not listed on a public exchange such as the New York Stock Exchange (“NYSE”). This means their shares are not directly affected by stock market volatility.
Performance Information: Typically, there is little to no public information released about private REITs so it is often difficult to obtain performance information unless you are invested in the private REIT.
Who can Invest: Private REITs are available for investment only by accredited investors, which on a high-level are individuals who have either over $1 million in net worth, excluding their personal residence or have made at least $200,000 a year for the past two years. As they are not regulated, the SEC wants to ensure that only experienced investors that have disposable income are investing in these types of vehicles.
Investment Minimum: Private REITs offered to retail investors often have a minimum investment amount of anywhere between $10,000 to $100,0000, and the upfront costs for Private REITs vary by company.
Liquidity: If you want to pull out your funds before a liquidation event, it might be difficult as redemption programs vary by company and are often limited.
2. Public, Non-Traded REITs
SEC Regulated: Public, non-traded REITs are required to file with the SEC and are therefore regulated.
Not Listed: Shares of public, non-traded REITs are not traded on a national stock exchange such as the NYSE. Which, much like private REITs, means their shares are not directly subject to stock market volatility. These types of REITs do not deal with daily price changes like publicly traded REITs, which allow the managers to focus on long term objectives instead of focusing on daily price changes and quarterly earnings.
Performance Information: Though these REITs are not traded on an exchange, because they are registered with the SEC, there are required SEC filings and performance reporting is publicly available. In general, due to the long-term nature of the real estate market and the work involved in closing each transaction, the objective of many real estate managers and investors is to hold on to real estate investments for the long term.
Who can Invest: Public non-traded REITs are available for investment by anyone, whether accredited or non-accredited, subject to certain investment limits.
Investment Minimum: The minimum investment for a public non-traded REIT typically starts around $1,000 but may vary. Many non-traded REITs charge high upfront fees that may be as much as 15% of the per share price according to FINRA. However, in the past few years, technology savvy non-traded REITS are working to redefine the industry by charging lower upfront fees. Our own REITs, Income REIT, and Apartment Growth REIT charge a maximum of 3% as an upfront fee to our investors.
Liquidity: Like private REITs, because the shares of non-traded REITs are not traded on an exchange, redemption programs are often limited and vary by company.
3. Public, Traded REITs
SEC Registered: Public traded REITS are registered with the SEC and regulated.
Listed: In contrast to both private REITs and public non-traded REITs, publicly traded REITs are listed on a stock exchange and as such are subject to the volatility of the stock market.
Performance Information: As they are registered and regulated, a wide range of public information is available both by the company that owns and manages the REIT, and independent sources. As publicly traded REITs are liquid, visible to the public, and have daily pricing changes, there may be pressure to focus on short-term quarterly earnings instead of long-term investment objectives. It may also be hard to raise capital when the market is down.
Who can Invest: Anyone may invest in publicly traded REITs with a minimum investment of one share (at the current share price). The upfront fees are charged by the broker that you purchase your shares though and may be the same as you would pay for buying or selling any other publicly traded stock.
Investment Minimum: Typically, a minimum of one share.
Liquidity: Unlike private REITs and public non-traded REITs, publicly traded REITs are liquid and may be traded every business day, which means they are easy to redeem.
Summary
Overall, which vehicle you choose to make your REIT investment in real estate is dependent upon what your current goals and objectives are, among other variables. Some of the questions you should ask yourself before choosing what type of REIT investment to make are: What is important to me? Am I looking for a more liquid investment like a publicly traded REIT?
If so, are you comfortable with daily price fluctuation and market volatility exposure? Or is your goal to invest real estate as directly as possible? While non-traded REITs were often shunned due to their high fees, many companies, including RealtyMogul, have made it possible to charge the investors lower up-front fees and put more of your money to work for you.
Learn more about RealtyMogul’s REITs:
Income REIT invests in a variety of commercial properties via debt and debt-like securities. The primary objectives of the Income Reit are to pay attractive and consistent cash distributions, and to preserve, protect and increase an investor’s capital contribution.
Apartment Growth REIT invests in common equity and preferred equity in multifamily apartment buildings throughout major markets in the United States. The primary objectives of the Apartment Growth REIT are to realize capital appreciation in the value of our investments over the long-term, and to pay attractive and stable cash distributions to shareholders.
For more information, please review the Offering Circular for Income REIT and Apartment Growth REIT prior to investing.
Investing in the Company’s common shares is speculative, involves substantial risks, and is not suitable for all investors. Before investing, consider the “Risk Factors” section outlined in the offering circular detailing risks, including, but not limited to, illiquidity, complete loss of capital, limited operating history, conflicts of interest and blind pool risk. Past performance is not indicative of future results. Investment information contained herein has been secured from sources RealtyMogul believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability. We suggest that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity.