Traded vs. Non-Traded REITs

By Thomas P. Roussel | May 6, 2024

A real estate investment trust (REIT) is a company that operates or finances real estate that generates income. Many investors commit to REITs hoping to generate passive income. REITs allow for more affordable real estate investments and help investors diversify their portfolios. 

REITs are available in several distinctive types, including traded and non-traded. Learning more about these types and their investment requirements assists investors with major financial decisions.

What Are the Differences Between Traded and Non-Traded REITs?

REITs are companies that purchase and manage real estate for long-term periods. They receive funding from investors and use it to buy and operate properties. REITs are available in different types, including traded and non-traded. Traded REITs are traded on public United States stock exchanges, such as the New York Stock Exchange (NYSE). Non-traded REITs must register with the United States Securities and Exchange Commission (SEC). They are open to anyone, but they do not trade openly on any market exchange. 

Traded and non-traded REITs have different investment requirements, creating distinctive pros and cons. Understanding the differences between traded and non-traded REITs helps you make more informed financial decisions. These are three of the major differences between the types:

1. Acquiring Process

One of the most significant differences between the two types is the process you use to obtain them. Investors trade public REITs on public stock exchanges, while non-traded REITs are available from placement agents and financial advisors. Placement agents form selling agreements with REITs in different sectors, then help investors access them.

To acquire a publicly traded REIT, you follow similar procedures used for other public stocks. In contrast, you work with financial advisors or online investment platforms to obtain non-traded REITs. Placement agents and financial advisors form selling agreements with REITs in different sectors, then help investors access them. For instance, 1031 Crowdfunding has many selling agreements for opportunities in various sectors.

2. Liquidity

Traded and non-traded REITs also have varying liquidity levels. Publicly traded REITs have higher liquidity — investors can access their capital by selling their shares. 

Traded and non-traded REITs have varying liquidity levels.

With a non-traded REIT, investors generally have to wait until the REIT liquidates its holdings, although they may be able to sell their shares through a broker. Investors can also use share redemption programs to access their funds. These programs allow investors to redeem shares more quickly than waiting until REIT liquidation. However, these agreements are often only available with restrictions that limit liquidity. REITs can also discontinue share redemption programs without notice.

While the decreased liquidity is a con for many, it can also create more opportunities for long-term financial goals. Investors can plan long-term strategies for their assets instead of making abrupt decisions.

3. Transparency

The two types have contrasting reporting and regulation requirements. Publicly traded REITs must file with the SEC and comply with all federal reporting guidelines. The financial information is available to all public investors, decreasing investment risks. Similarly, public non-traded REITs also register with the SEC and file reports to meet regulatory standards.

However, non-traded REITs are not listed on national security exchanges, which can decrease transparency. Investors might not have access to all property details when making decisions. 

Traded REITs Pros and Cons

Traded REITs have distinctive advantages and disadvantages that make them more or less suitable for investors. These are a few notable pros:

  • Enhanced accessibility: Anyone with a brokerage account can access publicly traded REITs. Their accessibility makes them available to all types of investors, no matter their experience or wealth.
  • Increased transparency: SEC broker regulations require regular financial reports for traded REITs. Investors can view the exact share value, decreasing investment risk. The more financial information you have, the more informed choice you can make for your financial goals.
  • Higher liquidity: The high liquidity levels of traded REITs mean you have more selling opportunities. You could sell an asset or raise money quickly with a publicly traded REIT.

However, traded REITs also have a few cons:

  • Unpredictable market fluctuations: Because publicly traded REITs are directly tied to public stock exchanges, they are subject to market fluctuations. Sudden stock changes could cause the value to increase or decrease dramatically, impacting your financial goals.
  • Strict reporting requirements: While reporting requirements assist with transparency and informed decision-making, they also take more time and resources. 

Non-Traded REITs Pros and Cons

Non-traded REITs also have various pros and cons that make them better suited for certain investors than others. Their advantages include:

  • Not subject to market fluctuations: Non-traded REITs are not connected to the public stock market’s volatility. Instead, their value can stay more stable over time. Non-traded REITs might also offer higher-return investments than those available on the public market. 
  • Beneficial for long-term financial goals: Non-traded REITs can also benefit long-term financial investments. The longer holding periods allow you to focus on broader goals instead of immediate results. Strategic planning could result in higher yields in the future. 

You might also face these disadvantages:

  • Lack of liquidity: Non-traded REITs are illiquid, so you cannot access capital quickly.
  • Sometimes available only to accredited investors: You must be accredited and meet certain investment amounts before investing in some non-traded REITs. These requirements restrict some non-traded REITs from many potential investors.

How to Invest in Traded or Non-Traded REITs

Investors interested in a traded or non-traded REIT have to follow different procedures for each type. These are the basic investment steps for both options:

  • How to buy traded REITs: Publicly traded REITs are posted on public stock exchanges. You can view the postings similar to how you view other public stocks. Investors can get started by purchasing shares on a public exchange.
  • How to buy non-traded REITs: Non-traded REITs are available through placement agents and financial advisors. You can purchase non-traded shares through online investment platforms in specific offerings. In addition, they are available to purchase in mutual funds or exchange-traded funds. However, pooled investment vehicles give you less control over your REIT selection.

Financial advisors can help you determine which REIT type better suits your needs and the proper first steps for your investment. 

Learn More About REIT Investments With 1031 Crowdfunding

Learn More

Both traded and non-traded REITs allow investors to invest in real estate and generate passive income. Depending on the type you choose, you can experience various financial benefits while avoiding typical property owner responsibilities.

1031 Crowdfunding is a real estate investment platform that offers several REIT investment strategies. Our experienced team of real estate professionals helps investors navigate available real estate investments and determine which options align with their financial goals most closely. Our management team has over 78 years of combined experience, allowing us to help you with confidence.

Register for an investor account to get started with our investment opportunities, or visit our blog to learn more about REITs.

 

This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements is speculative in nature and involves a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC Member FINRA, SIPC.

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