Quick Comparison
| Non-Traded REIT | Traded REIT | |
|---|---|---|
| Overview | A Non-traded REIT, also known as a Public Non-Listed REIT, is a REIT by legal standards but does not publicly trade on a stock exchange like the New York Stock Exchange and is therefore not easily bought or sold. | A traded REIT is publicly listed and traded on a stock exchange and can be easily bought and sold like traditionally traded stocks. |
| Liquidity | It cannot be easily bought or sold. | Quickly bought or sold through brokerage or retirement account |
| Minimum Investment Amount | $25 – $500 | 1 Share |
| Stock Market Correlation & Volatility | Less correlated and Lower volatility | More correlated and higher volatility |
What is a REITs ?
REIT stands for real estate investment trust.
A REIT is a company that owns, invests in, or finances residential or commercial real estate.
The term REIT is really just a tax concept. As long as the company meets a long list of requirements set forth by the IRS, it can qualify as a REIT.
General requirements to qualify as a REIT include:
● Types of assets you own
● The type of income you receive
● Who is the owner?
● How much of your income do you distribute to your owners?
The most popular requirement for REITs is that they must distribute 90% of their income to their investors.
There are several tax advantages to qualifying as a REIT, mainly avoiding double taxation, once at the corporate level and then at the individual level, which is why a REIT distributes 90% of its income to owners.
Both commercial and non-commercial REITs invest in a huge segment of real estate.
However, most REITs tend to focus on one sector. Common areas of real estate include:
Common Real Estate Sectors:
- Office
- Industrial
- Retail sales
- Accommodation/Resorts
- Residential:
- Timberland
- Healthcare
- Storage
- Infrastructure
- Data center
And within the industry, a REIT can invest in a variety of categories, from owning and operating to providing financing to real estate owners.
Let's take a look below…
Categories of REITs
The 3 main categories of REITs are equity REITs, mortgage REITs, and hybrid REITs.
- Equity REITs. This is the most common type of REIT. Equity REITs typically own and operate income-producing real estate, such as an apartment complex or commercial space.
- Mortgage REITs. Provide financing to real estate owners and operators through mortgage loans, real estate loans, or the purchase of mortgage-backed securities.
- Hybrid REITs. Use a mix of equity and mortgage REITs.
Regardless of category, a REIT can be a traded REIT, a non-traded REIT, or even a private REIT, but private REITs are only open to accredited investors and are beyond the scope of this discussion.
What is a Non-Traded REIT?
An unlisted REIT, also known as a non-public REIT, is a REIT by legal standards but is not publicly listed on a stock exchange such as the New York Stock Exchange and therefore cannot be easily bought or sold.
What is a Traded REIT?
A commercial REIT is publicly traded and traded on a stock exchange and can be easily bought and sold like traditionally traded stocks.
How Are Traded and Non-Traded REITs Different?
Liquidity
The most important difference between traded and non-traded REITs is that non-traded REITs cannot be easily bought or sold because they are not listed on a public stock exchange such as the New York Stock Exchange (NYSE).
Unregistered REITs are generally considered illiquid investments, meaning they cannot be easily converted into cash.
Some companies that offer non-traded REITs have liquidity options, but they often require investors to pay a fee, usually around 1%, to sell their shares.
If you invest in a non-traded REIT, you should expect to hold your investment for 3-5 years.
Correlation and Volatility
Publicly traded REITs have stronger correlations to the broader stock market and higher volatility.
Meanwhile, unlisted REITs have correlations of 0.14 and -0.12 to publicly traded stocks and bonds, respectively, according to TIAA's study of private real estate investments.
This means that if the S&P500 falls 1%, unlisted REITs will only change 0.14%. And because private REITs cannot be easily bought and sold, they are not subject to large price swings like publicly traded REITs.
Minimum Investment Amount
Non-profit REITs typically have a higher minimum investment amount, ranging from $25 to $5,000, depending on the company.
Meanwhile, you can invest in publicly traded REITs for as little as 1 share.
Performance Tracking
As more information is available to publicly traded REITs, a large number of independent performance metrics and analyst reports are available to the public.
Meanwhile, there are no independent analysts tracking unlisted REITs, making it difficult to find independent sources of performance data.
Investor Requirements
If you want to invest in publicly traded REITs, the only requirement is that you have a brokerage or retirement account to start investing.
Investing in an unregistered REIT may have stricter requirements. For example, some but not all real estate platforms are only open to accredited investors.
Management
Most publicly traded REITs own and operate the properties in their commercial real estate portfolio.
Meanwhile, many, but not all, of the platforms that market non-commercial REITs simply serve as a conduit to connect real estate investors and sponsors, paying each time they sign up as an investor.
Some argue that this creates a potential conflict of interest, since the purpose of the platform is ultimately to make money. Conversely, others argue that this model is necessary so that sponsors can focus on real estate investing rather than the administrative and marketing burden of managing many individual investors.
How Are They The Same?
Regulation
Publicly traded and unlisted REITs are regulated by the Securities and Exchange Commission (SEC).
Before investing, you can research the registration status and review the latest filings of publicly traded and unlisted issuers using the SEC's EDGAR database.
Investment Strategy
Both unlisted REITs and publicly traded REITs typically have defined investment strategies.
Some transactions may focus on income-producing real estate, while others may focus on capital appreciation through a value-add strategy.
Inflation Hedge
Commercial real estate is generally considered a hedge against inflation. This is because with inflation, commercial real estate owners raise annual rents as leases expire.
In 17 of the last 20 years, REIT dividend growth has outpaced inflation relative to the Consumer Price Index (CPI), according to REIT.com.
Returns
Comparing yields between non-traded REITs and traded REITs is not always an apples-to-apples comparison.
But let's break it down…
From 2010 to 2021, the FTSE All Equity REIT, a benchmark of all publicly traded REITs, averaged 14%. Comparatively, the NPI, the benchmark for all private real estate, returned 10.1%.
Consequently, publicly traded REITs outperformed private real estate.
But…
A driving factor behind the returns of publicly traded REITs is that they often invest in new real estate industries, such as data centers and cell phone towers, and are more diversified.
Meanwhile, private real estate is largely comprised of the “RORI” (residential, office, retail and industrial) sectors, a slow-growth sector, according to the National Trust Association's Market Commentary. Investing in reality. Property:
Which is a Better Investment?
While publicly traded REITs outperformed unlisted REITs, that only tells part of the picture.
In my opinion, the most significant difference between commercial REITs and non-commercial REITs is the ability to easily buy and sell commercial REITs, while non-commercial REITs require you to hold your money for 3-5 years or pay a fee to sell. your actions
Additionally, publicly traded REITs have a minimum investment of 1 share, compared to unlisted REITs, which typically require a minimum investment of $500 or more.
However, unlisted REITs aren't subject to the wild swings of the stock market like publicly traded REITs, so not having to endure the scary moves makes some people sleep better at night, even if it means giving up 2-4% of the yield.
How Do I Invest?
You can easily buy and sell publicly traded REITs with an existing investment or brokerage portfolio.
Investing in unlisted REITs is a bit trickier. Most non-accredited investors looking to invest in unlisted public REITs typically must do so through real estate crowdfunding platforms such as Fundrise.
You cannot invest in unlisted public REITs through your brokerage.
