Non-Traded REITs

What Are Non-Traded REITs And Why Are They So Dangerous?

A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate. Think of them like mutual funds for real estate.

• Traded REITs are listed on major stock exchanges (like the NYSE) and can be bought and sold quickly, just like stocks.
• Non-Traded REITs are not listed on exchanges. This is the critical difference and the source of most of their problems for investors.

Here’s why non-traded REITs have become a magnet for investor complaints and a frequent source of legal claims:

1. Massive Upfront Commissions & Fees: Brokers love non-traded REITs because they pay them huge commissions – often 7% to 10% or even higher of your initial investment. These fees are taken off the top, meaning a significant portion of your money is gone before the REIT even buys its first property. This creates an enormous incentive for brokers to push these products, regardless of whether they are suitable for you.
2. Illiquidity: Your Money is Locked Up: This is perhaps the biggest trap. Because NT-REITs don’t trade on an exchange, you cannot sell them easily. Your money is typically locked up for 5 to 10 years, or even longer waiting for a “liquidation event”, with no way to get out early. This makes them profoundly unsuitable for retirees who need access to their capital for emergencies or living expenses.
3. Complex & Opaque Valuations: Without a public market, determining the true value of an non-traded REIT is incredibly difficult. Brokers often use optimistic (and often misleading) appraisals. When you finally try to sell, you often find the “true” value is far less than what you were told.
4. High Risks Often Undisclosed: While pitched as “safe,” non-traded REITs are subject to market risks, real estate downturns, management failures, and conflicts of interest. Brokers frequently downplay or completely fail to disclose these risks.
5. Lack of Transparency: Many non-traded REITs are heavily leveraged (borrowed money), and their underlying assets and financials can be very difficult for the average investor to understand.

Who Are Non-Traded REITs NOT Suitable For? (Most People)

Due to their illiquidity, high fees, and inherent risks, non-traded REITs are almost never suitable for the vast majority of retail investors, especially:

• Retirees or those nearing retirement: Who often need stable, accessible income and capital preservation.
• Anyone needing access to their funds in the short to medium term: Because your money is tied up for years.
• Conservative or Moderate Risk Investors: As the actual risks are much higher than typically presented.
• Investors with limited financial sophistication: Who cannot fully comprehend the complex fee structures and illiquidity.

If your broker sold you a non-traded REIT and you fall into any of these categories, you may have a strong case for an unsuitable investment claim.

Common Misrepresentations by Brokers Selling REITs

Brokers use a specific playbook to push these products:

• “It’s just like owning real estate, but easier.” (Omits: You can’t sell it, high fees, illiquidity)
• “It’s safe income and less volatile than the stock market.” (Omits: Actual market risk, high fees, management risk)
• “Your principal is protected.” (Omits: Fees erode principal, real estate can decline, no true guarantee)
• “You’ll get a high, steady dividend.” (Omits: Dividends may come from borrowed money or return of capital, not actual profits)