A “good” investment portfolio is diverse, consisting of securities in a variety of industries. Brokers and financial advisors may recommend that you invest in real estate, and one way to do that it through a Real Estate Investment Trust, or REIT. REITs are a lot like mutual funds, in that they allow investors of all shapes and sizes to own a part of the holding.
REITs come in two in forms: traded and non-traded. Traded REITs (those listed on the stock exchange) offer a number of benefits: they are relatively easy to buy and sell, operate with transparency, and generally offer a solid return on your investment.
Non-traded REITs, however, are a different animal. There are a few things investors should know about the risks involved with these products before they agree to any purchases:
- Non-traded REITs are generally illiquid. REITs that are not on the stock exchange are difficult to sell, which can put investors in a bind if they need money. According to FINRA, “While a portion of total shares outstanding may be redeemable each year, [they are] subject to limitations, [and] redemption offers may be priced below the purchase price or current price.”
- The fees can be high. The front-end fees for non-traded REITs can be as high as 15% of each share price. Furthermore, since they often use outside managers, many of whom are paid a significant portion of those fees, the investment could be in direct conflict with what is best for an investor.
- You may not know where you’re investing. Most non-traded REITs are part of a “blind pool,” which means investors don’t know what types of properties they are actually investing in.
- It takes more than a year to see an estimate of your share value. As transparent at traded REITs are, non-traded REITs offer little if any transparency for the first 18 months. That means an investor has to wait a year and a half to find out what the value of the asset actually is.
Non-traded REITs may be a good choice for investors with a higher risk tolerance, but they are not ideal for everybody. Your broker or financial advisor owes you a duty of care to ensure that your portfolio reflects your needs, not what is best for them or the brokerage. If you have suffered financial losses because of broker negligence, you may be able to seek damages through FINRA arbitration or in court.
The Frankowski Firm can help. Our skilled team of stockbroker fraud attorneys fights on behalf of investors throughout the country, upholding their rights in arbitration or in trial. To learn more about our services, we invite you to call us at 888.741.7503, or to fill out our contact form.