Those looking to start investing in real estate but without millions of dollars to start should consider an investment vehicle known as a non-traded real estate investment trust (REIT). Pronounced “reet,” this special corporate structure can own, and operate, or develop income-generating real estate.
Non-traded REIT Defined
According to investment experts, a non-traded real estate investment trust enjoys tax benefits that save the company money since it doesn’t pay corporate income taxes. Its investors enjoy benefits, too; since it’s not traded publicly, its shares consistently hold value.
Typically consisting of commercial real estate, a real estate investment trust offers a low-cost buy-in for small-dollar investors. Forming a REIT includes the following requirements. The company must:
- hold at least 75 percent of real estate assets,
- generate a minimum of 75 percent of its income from rents or similar real estate activity,
- consist of at least 100 shareholders,
- pay a minimum of 90 percent of its net income in dividends,
- consist of diverse shareholder ownership, so that it is no more than 50 percent owned by less than six individuals.
A non-traded REIT, then, offers a static buy-in price and consistent income generated via dividends for its investors.
Who Invests in Non-traded REITs?
It’s not for everyone though. If an investor wants assets they can quickly liquidate, a non-traded REIT won’t do. Unlike traded REITs, which investors can buy into on a public exchange, then liquidate when needed, a public non-listed REIT, may not offer liquidation for up to 10 years. That creates stable pricing.
The non-traded REIT offers the beginning investor a long-term investment that holds value. Non-accredited investors can buy shares in a non-traded REIT for about $1,000. Although they’re not publicly traded, these investment companies must still list themselves with the US Securities and Exchange Commission and follow its regulations.
Is a Non-traded real estate investment trust Right for You?
If this investment option sounds like what you want for your investment portfolio, find a non-traded REIT through a stockbroker or financial advisor. The sales representative of a non-traded real estate investment trust earns a commission, so check the fees associated with the non-traded REIT before purchasing shares.