Investing in Non-Publicly Traded REITs: What You Should Know

Real estate investment trusts (REITs) can be a great way to diversify your portfolio. Before you invest in a REIT, it’s important to know the difference between “private”/“non-publicly traded” REITs and publicly traded REITs. 

A REIT is an organization that owns, manages, and operates property. This can include residential and commercial properties, office buildings, hotels, and more. REITs often offer a steady income stream for investors. Some REITS are publicly traded, like stocks, which means they are very liquid. On the other hand, non-publicly traded REITs don’t trade on an exchange and have certain advantages and disadvantages:

The Pros 

  • Diversification – Non-publicly traded REITs provide exposure to a variety of property deals that are not always available in the public markets. 
  • Potential for higher returns – They may offer higher returns than publicly traded REITs due to the higher risk (less regulation).
  • Low correlation with other asset classes – They may have a low correlation with other asset classes, which could provide a hedge against market volatility. 

The Cons 

  • Lack of regulation – Non-publicly traded REITs are not subject to the same level of regulation as publicly-traded REITs, which may increase the risk of fraud. There is a higher degree of risk due to the lack of transparency and liquidity.
  • High fees – These REITs often charge higher fees than publicly-traded REITs, which can reduce the potential for returns. 
  • Limited liquidity – They may not be as liquid as publicly-traded REITs, which can make it difficult to sell them (read: limited or no access your funds if you need money). 
  • Painful taxes – If you buy Israeli REITs and are a U.S. citizen, you may own a PFIC – a “passive foreign investment company,” which can have adverse tax consequences. (Make sure to speak to your tax professionals since I don’t provide tax advice.)

Investing in non-publicly traded REITs may help with portfolio diversification and potential growth, but these benefits come with real risks. Balance your research with professional advice before making any decisions. If you’re looking to invest in REITs, let’s start a conversation (doug@profile-financial.com).

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Douglas Goldstein, CFP®, GFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

Published June 20, 2023.

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