When it comes to investing in REITs, there are two main choices available: private REITs and public REITs. Both options have unique benefits, so it’s a good idea to learn more about these different types of investments before making a decision about your portfolio. Take a closer look at traded and non-traded REITs to see which one is right for you.
Public REITs, also referred to as traded REITs or publicly traded, are real estate investment trusts that are traded on the stock exchange. This means the shares are made available to the public for purchase, and the shares can also be sold. REITs traded on major stock exchanges are registered with the SEC and may be subject to certain regulations. You can invest in a publicly traded REIT using a self-managed brokerage account or by going through a broker.
One reason some investors like public REITs is the liquidity of the investment. Shares can be sold in much the same way as stocks, so it’s easier to respond to market highs and lows. However, traded REITs are subject to market volatility in ways that other REITs might not be, which can make them less likely candidates for long-term investing and wealth building.
Non-traded REITs fall into two separate categories: private REITS and public non-listed REITs. Much like their name implies, these types of real estate investment trusts are not listed or traded on any stock markets. This means they aren’t as liquid as their publicly traded counterparts and are more ideal for use as long-term investments. Non-traded REITs also have some significant tax benefits, which can make them more attractive to some investors.
However, private and public non-listed REITs do have some critical differences. Anyone looking to invest in a private REIT must be an accredited investor, which means they need to meet certain minimum net worth requirements before investing. These REITs are also not required to register with the SEC, which means there may be some additional risk associated with them. Accredited investors with a certain net worth may be able to take on higher levels of risk, which is why the accreditation is required before investing.
Public non-listed REITs, on the other hand, do not require individuals to be accredited. This means anyone can invest in the trusts, as long as they can meet any minimum investment threshold required by the REIT. Unlike private REITs, public non-listed real estate investment trusts are required to register with the SEC. If you’re looking for an investment with potentially lower risks, you may feel more comfortable with this choice.
Is Public or Private Right for You?
Investing in any type of REIT lets you become a real estate investor without the burden of loans, building maintenance, and other landlord responsibilities.
Traded REITs can be a good entry point into real estate for new investors, and they can also be ideal if you’re looking to keep your assets liquid and accessible. However, it’s important to remember that any traded investment is subject to the whims of the market each day. You may see significant highs and lows for your shares, and this can make some investors nervous to hold on to a traded REIT long-term.
Private REITs do carry some extra risk, but for accredited investors, they can also provide greater returns. Depending on your risk comfort level, they can be smart additions to a diverse portfolio designed for long-term growth.
Public non-traded REITs combine the benefits of publicly traded REITs and private REITs, providing some protections with SEC regulations while offering accessibility to a wide range of individual investors. They can help hedge against inflation and market volatility in ways that traded real estate investment trusts can’t.
Your financial advisor can compare the different REIT options to your financial situations, wealth-building goals, and risk level to help you decide which choice is the right one for you. To learn more about DiversyFund private (public, non-traded) REITs, click here.