99% of investors would be wise to avoid non-traded REITs entirely. Not only are there plenty of high-yielding public REITs on the market, they are also more liquid, more transparent, and more diversified than a non-traded REIT.
If you are interested in investing in a non-traded REIT be sure to know:
- What’s in the deal for your broker. Non-traded REITs can generate large commissions for brokers who sell units to clients.
- The financial reports for the company as well as a background of company management. This should be in any prospectus.
- Proof of ownership of each property and some familiarity with the property in question. Just as you wouldn’t throw a dart at classified ads to buy a rental property, you shouldn’t invest in a non-traded REIT without knowing what it owns, either.
- An understanding of the risks in investing in an illiquid REIT that may or may not provide any returns for investors. Non-traded REITs are substantially more risky than public REITs as a whole.
If you’re a banker or accountant by day, a non-traded REIT may be an interesting entrepreneurial investment. If you can’t claim finance or accounting as your favorite past times, a non-traded REIT should be dumped for investments that are more easily understood and better investigated. Publicly-traded REITs should be the first place to start for alternatives.