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An increasing number of people are using real estate investment trusts (“REITs”) to put their money into commercial properties with the expectation of a steady stream of income.
A real estate investment trust (REIT) is a type of real estate company that doesn’t engage in the business of building and then selling individual properties. In contrast, a REIT acquires and builds properties for its own portfolio, rather than rent them out to others.
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Individual investors are able to participate in a portion of the revenue generated by the owners of commercial real estate through the use of real estate investment trusts (REITs), which eliminates the necessity for the investors to actually purchase commercial property. A publicly held REIT is one that is published on a prominent stock exchange, allowing investors to buy shares through a broker and have exposure to the market. Non-traded REIT shares can be purchased through a broker who is a participant in the selling of the non-traded REIT. You can also invest in real estate by buying shares in a mutual fund or ETF focused on REITs. You can get all the latest REIT news via DI Wire, one of the most trusted and reliable sites. You can get news related to changes and shifts in the market instantly as it is updated daily by DI Wire.
Risk associated with REIT
REITs allow investors to diversify their portfolios by including real estate. And some real estate investment trusts (REITs) may provide higher dividend yields than other investing options.
But there are risks associated, especially for real estate investment trusts that are not publicly traded on an exchange (REITs). However, because their shares are not publicly listed, non-traded real estate investment trusts (REITs) have their own unique set of risks.
Without regular trading, non-traded real estate investment trusts (REITs) are illiquid. They rarely sell for a high price or rapidly in open markets. Shares of a non-traded real estate investment trust may be unsuitable if you need to swiftly sell an asset in order to meet a cash flow demand (REIT).
Fairness in Stock Valuation Reporting
However, unlike publicly-traded REITs, where one can easily access market pricing information, valuing shares in non-traded REITs might be more of a challenge. Non-traded real estate investment trusts typically do not release an estimated share value until 18 months after the offering closes. That may not occur until a long time after you’ve put money into the venture. Because of this, gauging the worth and volatility of a non-traded REIT investment may be impossible for a significant period of time.
It May Be Used to Make Distributions
Compared to publicly traded REITs, the dividend yields of non-traded REITs may be more attractive to investors. However, unlisted REITs routinely pay out more in dividends than they bring in via operations. This is in contrast to real estate investment trusts (REITs), which are publicly traded companies. That might be done with a combination of IPO proceeds and debt financing. Not many publicly traded REITs use this strategy, but it has consequences for both share price and the company’s ability to raise capital to buy more real estate.
Conflicts of interest
Because of the risks associated with internal promotions, non-traded REITs prefer to bring in a manager from the outside instead of promoting from the inside. Conflicts of interest with the stockholders may arise as a result of this. For instance, the external manager may demand substantial fees from the REIT due to the sheer volume of properties and assets under management. It’s likely that the incentives provided by these fees aren’t totally aligned with what’s best for shareholders.