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Non traded real estate investment trust or REITs lack liquidity, have high fees and can be difficult to value. The fees for investing in a non-traded REIT may be as much as 15 percent of the per share price. These fees include commissions and expenses which cannot exceed 10 percent of the offering price. Investors are often attracted to the high yields offered by these investments. FINRA Member Firms who conduct business in these products must conduct on going suitability determination on the REITs they recommend. Firms must react to red flags in the financial statements and from the REIT’s management and adjust the recommendation process accordingly or stop recommending if material changes take place that would make the REIT unsuitable.
Holding periods for not traded REITs can be eight years or more and the opportunities to liquidate the investments may be very limited. Furthermore the distributions from the REITs themselves maybe based on the use of borrowed funds and may include a return of principal which may be adversely impacted and cause the distributions to be vulnerable to being significantly reduced or stopped all together. Distributions may exceed cash flow and the amount of the distributions in any are at the discretion of the Board of Directors Non traded REITS like exchange traded REITS must distribute 90 percent of the income to shareholders and must file 10Ks and 10Qs with the SEC. Broker dealers who sell non-traded REITS must provide investors with a valuation of the REIT within 18 months of the closing of the offering of shares. Pass your securities exam with ease. Visit The Securities Institute today