Private REITs vs Publicly Traded REITs (2024)

FAQs

Are publicly traded REITs better than private REITs? ›

While a public REIT that's sold like a stock on the broader exchanges can be bought or sold with relative ease, a private REIT is a limited partnership business. That means that capital invested in the private REIT needs to be non-essential since a redemption can be challenging – if allowed at all.

Private REITs, unlike their publicly traded counterparts, do not offer the same level of transparency and liquidity. Their prices are not updated daily on public exchanges but are instead reported quarterly or yearly.

Cons of Investing in a Private REIT

Moreover, private REITs are generally riskier investments compared to their publicly traded counterparts. They also may lack the same level of transparency, making it harder for investors to assess the underlying assets and the performance of the REIT.

How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

Private REITs are not traded on an exchange, which means that there are more restriction in who can invest in them. As such, they tend to be less liquid than public REITs since it can be difficult for investors to find buyers for their shares should they decide to sell.

The risks associated with private REITs include liquidity, leverage, and management/company risk, and most are classified as medium-high to high risk.

BREIT is by far the largest private REIT, with a net asset value of $68 billion as of Nov. 30, 2022. Its biggest rival is Starwood Real Estate Income Trust, or SREIT, with a net asset value of $14 billion as of Nov. 30, 2022.

REITs. When interest rates are falling, dependable, regular income investments become harder to find. This benefits high-quality real estate investment trusts, or REITs. Strictly speaking, REITs are not fixed-income securities; their dividends are not predetermined but are based on income generated from real estate.

Private REITs generally can be sold only to institutional investors, such as large pension funds, and/or to “Accredited Investors” generally defined as individuals with a net worth of at least $1 million (excluding primary residence) or with income exceeding $200,000 over two prior two years ($300,000 with a spouse).

By law, a REIT must pay at least 90% of its income to its shareholders, providing investors with a passive income option that can be helpful during recessions. Typically, the upfront costs of investing in a REIT are low, while their risk-adjusted returns tend to be high.

What is the commission on a private REIT? ›

Subscription Fees: Charged for processing your investment, these can range from 0.5% to 2% of your investment amount. Acquisition Fees: To cover the costs associated with sourcing and acquiring real estate assets, Private REITs may charge fees that typically range from 1% to 3% of the property acquisition cost.

Because REITs use debt to purchase investments, rising interest rates could mean these companies would have to pay more interest on future loans. This could in turn reduce their return on investment. Because of this, REITs could potentially lose value when interest rates rise.

The final regulations (i) provide a 10-year “transition rule” that grandfathers current structures, subject to certain requirements, and thus allows certain entities to continue to be treated as D-REITs for ten years and (ii) narrow the scope of the “look through” rule, pursuant to which REIT stock owned by certain ...

Is Five Years the Standard "Hold" Time for a Real Estate Investment? Real estate investment trusts (REITS) and other commercial property investment companies frequently target properties with a five-year outlook potential.

“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.

One significant advantage of investing in a private REIT is its correlation has been historically low to the markets—the price of private REIT units is solely based on the actual appraised value of the real estate holdings, which generally translates to a lack of fluctuation in response to public market volatility.

Valuation. As public REIT units are listed on a public stock exchange, they are valuated much more frequently than is typical from their private counterparts. For example, in contrast to a public REIT 's daily valuation on the stock market, private REIT s may undergo valuation once per year.

While non-traded REITs are required to register with and be regulated by the Securities and Exchange Commission (SEC), private REITs are not. Both REITs are not directly affected by stock market volatility because they don't trade on any national stock exchanges.

Are REITs Good Investments? Investing in REITs is a great way to diversify your portfolio outside of traditional stocks and bonds and can be attractive for their strong dividends and long-term capital appreciation.