Non-traded REITs are privately owned real estate portfolios that allow investors to share interest in a real estate portfolio. Unlike publicly traded REITs, non-traded REITs do not trade shares on a public stock exchange. Non-traded REITs are popular during economic downturns because investors commit their money for a specific period of time, earning dividends until the investment period ends. Non-traded REITs have expanded into specialty real estate, including self-storage facilities, healthcare buildings, and entertainment venues.
Non-traded real estate investment trusts (non-traded REITs) are privately owned real estate portfolios. A REIT is a type of company that allows multiple investors to share interest in a real estate portfolio, in much the same way investors share the profits of a stock portfolio through a mutual fund. A REIT can be publicly traded on a stock exchange or privately held. Unlike RIETs, non-traded REITs do not trade shares of the REIT on a public stock exchange.
The REIT concept originated in the United States in 1960, but has since spread to many countries around the world. Since many countries do not allow foreign nationals to own property, REITs have become a legitimate way for foreign investors to take advantage of partial ownership of foreign real estate. The traditional REIT is publicly traded, allowing the investor to freely transfer the shares at any time on a stock exchange. During downturns in global financial markets, the ability of investors to walk away from their shares in a publicly traded REIT begins to affect the value of the publicly traded REIT and the returns it could offer investors.
The popularity of non-traded REITs is a result of the poor economic climate as a vehicle that could force investors to weather economic whims. Investors in a non-traded REIT commit their money for a specific period of time, typically seven to 10 years, and cannot easily withdraw or exchange that interest until the investment term has expired. During that time period, the investor earns dividends on his investment until the investment period ends and the untraded REIT is liquidated or an initial public offering is held. The investor in this type of private REIT trades cash for stable dividend yields while protecting itself from stock market volatility. Publicly traded REITs are vulnerable to volatile markets.
In many other respects, untraded REITs are just like publicly traded REITs. In the US, both must register with the Securities & Exchange Commission and are required to pay 90% of income in the form of dividends. Both types of REITs enjoy the same tax benefits as a tax-passage company that can avoid double taxation. Non-traded REITs have even expanded into the realm of specialty real estate that had been the purview of publicly traded REITs. In addition to the four standard types of real estate — offices, retail, apartments and industrial — untraded REITs are now investing in self-storage facilities, healthcare buildings, entertainment venues, woodlands and other nontraditional business types.
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