The Dangers of Non-Traded REITs

August 22, 2011

Increasingly, brokers are recommending that investors buy shares in non-traded real estate investment trusts, or REITs.  REITs are trusts that manage real estate assets.  If these REITs are on a stock exchange, the shares trade like a normal company (except that REITs are differently valued).  If they are non-traded, the REIT acts as a private company owned by an amalgamation of unrelated investors.  The commissions and fees on these REITs can be up to 17% of the investment, with the promise of large dividends.

The problem with a non-traded REIT is the same as the problem with owning private company stock–there is no active market for the shares.  So, if the REIT decides to stop paying dividends and/or decides to not redeem shares in cash, the shareholder is stuck with the illiquid investment.

Non-traded REITs are risky, the Las Vegas Review Journal fittingly describes the investment as “betting most of his money on the red seven and one spin of the roulette wheel.”

Some non-traded REITs, such as Desert Capital (based in Nevada) have gone bankrupt, with investors losing every dime.

For more information on REITs, and if you lost money investing in a REIT, please call Jeffrey Salas (312.803.4963) Salas Wang LLC to discuss your options.

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