Non-Traded REIT

Definition

A Non-Traded Real Estate Investment Trust (REIT) is a type of REIT that is not listed on any securities exchange. This means that it can’t be bought or sold on the open market, making it less liquid than a traded REIT. However, it’s often noted for potentially providing investors with steady income streams and less volatility, as its value isn’t directly influenced by stock market fluctuations.

Phonetic

The phonetics of the keyword Non-Traded REIT would be: “Non-Traded arr-ee-eye-tee”.

Key Takeaways

<ol><li>Non-Traded REITs, standing for Real Estate Investment Trusts, have important differences from publicly-traded REITs. These particular trusts are not traded on national stock exchanges, and as such, allow investors to participate in the ownership of real estate without needing to manage it directly.</li><li>One substantial advantage of Non-Traded REITs is that they typically offer a high level of income potential compared to traditional, exchange-traded REITs. This usually arises because they are able to avoid the daily price volatility of the stock market, providing investors with more predictable and stable returns.</li><li>However, they also come with risks. Non-Traded REITs typically have high fees and are less liquid compared to their publicly-traded counterparts. This means that investors cannot easily sell their shares and convert them into cash. Therefore, these are usually considered long-term investments that aren’t suitable for investors who may need their money back in the short term.</li></ol>

Importance

Non-Traded REIT, or Real Estate Investment Trust, is significant in the business/finance sector due to its unique characteristics that can provide benefits to investors. Unlike traded REITs, non-traded REITs are not listed on public securities exchanges, thus offering reduced market volatility and potential for higher dividends. They offer investors a method of participation in the ownership of high-quality real estate properties that they may not otherwise be able to afford, allowing for diversified investment portfolios. Non-traded REITs are often used for their potential to provide steady cash flow, property appreciation, and tax benefits. However, their non-liquid nature can also make them a more complex investment to understand and manage, highlighting the need for thorough due diligence and expert advice before investing.

Explanation

Non-Traded REITs, or Non-Traded Real Estate Investment Trusts, serve a unique purpose in the investment world. Their primary use is to give individual investors access to income-producing commercial real estate properties, which might otherwise be inaccessible due to their capital-intensive nature. By pooling together funds from various individuals, a Non-Traded REIT provides participation in a diversified portfolio of properties, like apartments, shopping centers, hotels, and office spaces, among others. It essentially democratizes the real estate investment landscape, transforming what was once a high-barrier-to-entry venture into an accessible, retail-level investment. The main functionality of Non-Traded REITs is to generate a steady income stream for its investors. This is facilitated by the trust’s ability to leverage its pooled capital to buy and manage income-producing real estate. The income generated from these properties, through rent or lease payments, is then distributed to shareholders as dividends, providing a steady return on investment. This makes Non-Traded REITs a favored investment vehicle among those seeking consistent income, like retirees. It should be noted, however, that compared to traditional, exchange-traded REITs, Non-Traded REITs are less liquid, meaning they may be hard to sell or convert to cash quickly. However, this illiquidity can also be beneficial in providing insulation from the volatility of the stock market.

Examples

1. Inland Real Estate Group: Started in 1968, the Inland Real Estate Group has grown into one of the nation’s largest commercial real estate and finance groups. At one point in the past, they managed over $20 billion in non-traded REITs and dealt with assets from shopping centers, apartments, and single-tenant properties. 2. Jones Lang LaSalle Income Property Trust, Inc.: This company deals with investments that allow individuals access to CRE real estate in a way that, in the past, only institution-sized investors had. The company mentioned one of their non-traded REITs that had exceeded one billion dollars in the total portfolio, demonstrating their proficiency and success in this financing method. 3. Griffin Capital Essential Asset REIT: This non-traded REIT focuses on business essential properties. These are properties that the tenant sees as critical to their operation, meaning the risk of that tenant leaving is lower than average. Griffin Capital essentially derived investor’s benefit by securing deals with single-corporate tenants for these critical buildings.It’s worth mentioning that investing in non-traded REITs carries unique risks. They are not as liquid as their traded counterparts, making it harder for investors to sell their shares if the need arises, and also often come with high fees.

Frequently Asked Questions(FAQ)

What is a Non-Traded REIT?

A Non-Traded Real Estate Investment Trust (REIT) is a type of REIT that is not listed on any securities exchange. It allows investors to invest in real estate assets without the need to buy, manage, or finance properties themselves.

How does a Non-Traded REIT function?

Non-Traded REITs collect funds from investors to acquire a portfolio of properties. These properties generate income through rents, which is then distributed amongst investors as dividends.

What’s the difference between a Non-Traded REIT and a Traded REIT?

The main difference is that Non-Traded REITs are not listed on an exchange. This makes them less liquid, but they often experience less price volatility compared to Traded REITs because their value is not affected by market sentiments.

What are the advantages of investing in Non-Traded REITs?

Non-Traded REITs can generate a stable income stream through dividends, they can offer portfolio diversification, and they aren’t directly affected by stock market volatility.

What are the risks involved with Non-Traded REITs?

Non-Traded REITs are relatively illiquid, making them harder to buy or sell. They also have high upfront fees which may reduce the overall return on the investment. Furthermore, the value of the real estate properties can decline, impacting the dividend returns to the investors.

How are Non-Traded REITs valued?

The value of Non-Traded REITs is calculated based on the value of the underlying real estate assets. This is usually determined by professional appraisals.

Where can one purchase Non-Traded REITs?

Non-Traded REITs can be purchased via brokerage firms, financial advisors, or directly from the REIT itself.

Who should consider investing in Non-Traded REITs?

Non-Traded REITs may be suitable for investors looking for a steady income stream and those who are capable of handling a relatively illiquid investment. As always, it’s best to consult with a financial advisor before making any investment decisions.

Related Finance Terms

Distribution Rate
Liquidation Event
Share Repurchase Program
Net Asset Value (NAV)
Private Placement

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