Real Estate Investment Trusts (REITS): What You Need to Know
Recently, the SEC Office of Investor Education and Advocacy released a bulletin to help investors better understand publicly traded Real Estate Investment Trusts (REITs). REITs are an increasingly popular investment, especially in Florida. While REITs do offer considerable benefits for some investors, these complex financial products are certainly not appropriate for everyone. In this post, our experienced South Florida Real Estate Investment Trust (REIT) lawyer explains the basics of REITs.
What is a Real Estate Investment Trust?
An REIT is an investment entity that holds a portfolio of income producing real estate. Some properties that are often held by REITs include apartments, condos, medical buildings, office buildings, hotels, stadium, retail space and infrastructure projects. The primary purpose of Real Estate Investment Trusts is to allow investors to get portfolio access to otherwise inaccessible forms of high-end real estate.
REITS: Publicly Traded and Non-Traded
There are two broad categories of Real Estate Investments Trusts: publicly Traded REITs and non-traded REITs. Essentially, publicly traded REITs work much the same way as common stocks. They are listed on national exchange markets and can be traded when the market is open for business. On the other hand, non-traded REITs are not listed on an exchange. Of course, this means that non-traded REITs are far less liquid (not as easy to sell or liquidate) and are therefore typically appropriate for high-net worth, experienced investors.
Why REITs Can Be Risky
REITs are not suitable for many retail investors. As such, brokers, broker-dealers and REIT managers have a legal duty to avoid marketing or recommending these investments to investors, unless the investor actually has good reason to put money into these types of complex products. There are several different reasons why REITs are not appropriate for many investors, including:
- Large Upfront Fees: Compared to many other common investment products, REITs have relatively large upfront fees. As an investor, it is imperative that you are not overcharged by your broker. Keeping your fees down is a good way to increase your overall, real returns.
- Illiquidity: REITs, even publicly traded REITs, can be difficult to trade. By nature, these investments are far less liquid than other investments such as stocks and mutual funds. Should your REIT begin to drop in price, it is possible that you will have a hard time trading it. This lack of liquidity makes REITs too risky for many investors, especially elderly investors who may need immediate access to their life savings This is an especially big problem with non-traded REITs.
- Lack of diversification: Finally, to limit their risk, investors need to ensure that they are properly diversified. Far too often, brokers and brokerage firms encourage Florida investors to put an unacceptable percentage of their assets into risky real estate holdings.
Contact Our Florida Real Estate Investment Trust (REIT) Fraud Lawyer Today
If you lost money investing in REITs, you may be entitled to financial compensation for your damages. To set up your free, no obligation initial legal consultation, please contact our firm today by calling us at (561) 475-1332 or email us through our website. Our top-rated REIT fraud attorney Gregory Tendrich is standing by, ready to assist you with your claim.
You can read the SEC Release here:
investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-publicly-traded-reits