Dan Solin’s Newsletter, February 9, 2017
Non-Traded REITs: Great For Your Broker
Non-traded REITs are illiquid real estate investments registered with the Securities and Exchange Commission, which permits them to be sold to unsophisticated investors. Because they don’t trade on an exchange, they can remain illiquid for long periods of time.
Brokers make a killing selling non-traded REITs. According to Investopedia, “front-end fees can be as much as 15%, much higher than a traded REIT due to its limited secondary market.” You can only imagine the enthusiasm brokers have for including these products in retirement plans and peddling them to gullible plan participants and individual investors.
A far better option, for investors who want real estate exposure, is publicly traded REITs. A comprehensive analysis comparing the returns on non-traded to traded REITs found investors were “at least $45.5 billion worse off as a result of investing in the 81 non-traded REITs compared to investing in a diversified portfolio of traded REITs.”
I can understand why brokers are so keen to sell non-traded REITs. The market for them is around $10 billion a year.
There’s no reason for you to buy them.
Why You Believe Lies
Here’s a subject of endless fascination for me. The securities industry is premised on a series of lies. The most pernicious one is that it can help you plan for retirement by “managing” your money.
The reality is quite different.
“Here’s what I tell investors who ask for my most significant advice: Never do business with a broker.” – Dan Solin