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Real Estate Investment Trusts (REITs)

Image by Sean Pollock

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A REIT (Real Estate Investment Trust) is a company that owns, operates, or finances income-producing real estate. Congress created REITs in the 1960s so everyday investors could access large-scale real estate portfolios without needing to buy an entire property themselves.

Most people only encounter publicly traded REITs, which act like regular stocks — you can buy or sell them instantly.

 

A Non-Traded REIT, however, is a REIT whose shares aren’t listed on a stock exchange. Instead, investors purchase shares directly through financial advisors or investment platforms. The REIT then uses investor capital to buy and manage real estate.

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Think of a Non-Traded REIT as a long-term real estate fund built to generate income and potential appreciation without being tied to the hourly mood of the stock market.

Real estate doesn’t change in value every minute, and these structures allow the investment to behave more like real property and less like a stock.

Sponsors (the companies creating the REIT) often use this format when they want to:

  • Invest in long-term projects without worrying about daily trading prices

  • Offer access to institutional-quality properties (like large apartment communities, medical buildings, data centers, etc.)

  • Provide income-focused products to individual investors

 

How Non-Traded REITs Typically Work

Here’s the general lifecycle:

  1. Capital Raise Period – The REIT sells shares to investors, often over several years.

  2. Acquisition Phase – It uses the capital to purchase a diversified portfolio of properties.

  3. Operating Phase – It collects rents, manages properties, and pays investors dividends.

  4. Liquidity Event – After several years, the REIT may list publicly, merge with another REIT, or liquidate the portfolio.

Investors generally stay invested throughout this cycle.

 

Potential Benefits To Investors:

 

1. Reduced Volatility

Since shares don’t trade publicly, prices aren’t pushed around by headlines, investor panic, or algorithmic trading.
Values change mainly when the underlying real estate is re-appraised — usually quarterly or annually.

2. Income-Oriented Design

Most Non-Traded REITs are built to generate consistent income.
Rents from tenants become monthly or quarterly dividends distributed to shareholders.

3. Access to Large-Scale, High-Quality Real Estate

These REITs can invest in assets that are normally only available to:

  • pension funds

  • insurance companies

  • private equity firms

  • large institutions

For example, a Non-Traded REIT might own:

  • 20,000 apartment units across multiple states

  • a network of logistics warehouses leased to major e-commerce companies

  • highly specialized medical office buildings

4. Professional Management

Investors don’t have to screen tenants, fix roofs, or negotiate leases.
A full professional team handles acquisition, maintenance, financing, and strategy.

5. Potential Inflation Hedge

Many leases — especially in apartments, industrial, and self-storage — adjust over time.
When rents rise, income to investors can rise too.

 

Considerations and Risks

 

1. Limited Liquidity

Non-Traded REITs are not designed for short-term investors.
Although many offer share redemption programs, these can be:

  • limited,

  • capped each quarter,

  • or temporarily paused in tough markets.

Investors should expect a multi-year hold.

2. Fees

Non-Traded REITs often include:

  • management fees,

  • property-level expenses,

  • and sometimes upfront placement fees (though many modern REITs have reduced these).

Fees are typically disclosed clearly in the offering documents.

3. Valuation Lag

Because they are not priced daily, share values may lag behind real-time market conditions.
This can smooth volatility but can also delay recognition of downturns.

4. Market and Property Risk

They still face real estate risks — vacancies, interest rates, economic slowdowns.

 

 

Non-Traded REITs are designed for investors who:

  • Want real estate exposure without becoming landlords

  • Prefer income-generating investments

  • Have a 5–10+ year time horizon

  • Want to diversify away from stocks and bonds

  • Want a steadier ride than the public markets typically provide

 

They are increasingly used by retirees, income-focused investors, and those building diversified portfolios for long-term goals.

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