Risks & Suitability Considerations of Non-Traded REITs
Non-traded REITs are unique investments that offer many potential benefits to individual investors, including:
- The potential for high current yields
- The potential for high total returns
- Access to experienced real estate investment managers
In addition, REITs act as an asset with low correlation to other traditional asset classes, which has the potential to enhance portfolio return while reducing risks.
However, non-traded REITs also have unique features that may make them unsuitable for some individual investors.
- The primary risk, which is unique to non-traded REITs and other direct participation investments, is illiquidity.
- A related risk, derived from their illiquid nature, is that non-traded REITs are bound by law to execute an exit strategy to return invested capital to shareholders.
- The timing and implementation of such exit strategies also create unique risks.
Other risks that are common to non-traded REITs, traded REITs, and every other type of equity investment include market cycle risks, leverage risks, and manager/advisor skill risks.
It is essential to understand the risks associated with non-traded REITs, when non-traded REITs may be unsuitable, and ways to mitigate and reduce risks for an investor’s portfolio when using non-traded REITs.