Non-Traded REIT

What Is a Non-Traded REIT?

Non-traded REITs are not listed on public exchanges and can give retail investors access to inaccessible real estate investments with tax benefits.

Grasping Non-Traded REITs

A non-traded REIT is a form of real estate investment method that is intended to reduce or dispose of tax while giving returns on real estate. A non-traded REIT doesn't trade on a securities exchange and, along these lines, is very illiquid for long periods of time. Front-end fees can be basically as much as 15%, a lot higher than a traded REIT due to its limited secondary market.

The expectation of any REIT is that the investor will ultimately see income from its real estate portfolio with rent being the most common source of income. The types of properties that a non-traded REIT puts resources into from the get-go may be obscure to the investors and the initial property acquisitions may be made through a blind pool, where the investors don't have a clue about the specific properties that are being added to the program's portfolio.

Early redemption of a non-traded REIT can bring about high fees that can bring down the total return. Like exchange-traded REITs, non-traded REITs are subject to the very IRS requirements that incorporate returning somewhere around 90% of taxable income to shareholders. Investors tend to look for exchange-traded and non-traded REITs for their income distribution.

In spite of not being listed on any national securities exchanges, non-traded REITs must in any case be registered with the Securities and Exchange Commission (SEC). They are additionally required to make normal, periodic regulatory filings. This incorporates quarterly and annual reports as well as filing a prospectus.

Non-traded REITs could remain illiquid for quite a long time after their commencement since they are not traded on national exchanges and might not have a consistent income toward the beginning. Periodic distributions to shareholders of non-traded REITs might be to a great extent sponsored by borrowed funds. Such distributions are not guaranteed to be paid and may surpass the REIT operating cash flow. The board of directors for the non-traded REIT can choose whether or not to pay distribution and what amount will be given. At the point when a non-traded REIT is just beginning, its earliest distributions could come totally from the capital the investors put into it.

Numerous non-traded REITs are structured with a finite time span worked in before one of two moves must be made. Toward the end of the period, the non-traded REIT must either become listed on a national exchange or must liquidate. The value of the investment made into such a REIT might have diminished or become worthless at the time the program is liquidated.

Highlights

• Like exchange-traded REITs, non-traded REITs are subject to the very IRS requirements that incorporate returning no less than 90% of taxable income to shareholders.
• Regardless of not being listed, non-traded REITs must in any case be registered with the Securities and Exchange Commission and are required to make normal, periodic regulatory filings.
• Non-traded REITs are not listed on public exchanges and can give retail investors access to inaccessible real estate investments with tax benefits.