Thursday, March 24, 2016

Look Before You Invest - Non-Traded REITs

If you are looking for yield, and considering a REIT, make sure you understand the investment. FINRA has issued a release  which states, in part "while non-traded REITs and exchange-traded REITs share many features in common, they differ in several key respects. Most significantly, as the name implies, shares of non-traded REITs do not trade on a national securities exchange. For this reason, non-traded REITs are generally illiquid, often for periods of eight years or more."

Early redemption of shares is often very limited, and fees associated with the sale of these products can be high and erode total return.

The periodic distributions that help make these products so appealing can, in some cases, be heavily subsidized by borrowed funds and include a return of investor principal. This is in contrast to the dividends investors receive from large corporations that trade on national exchanges, which are typically derived solely from earnings.

Read more: FINRA REIT Alert
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