FINRA Warns Investors to Be Careful When Considering Public Non-Traded Real Estate Investment Trusts

In a recent Investor Alert, the Financial Industry Regulatory Authority said that it wants investors to be aware of the risks involved in investing in non-traded real estate investment trusts that are publicly registered. The regulator is also recommending that investors ask the right questions regarding benefits, fees, and features.

Nontraded REITS invest in real estate, must be registered with the SEC, and are required to make regulatory disclosures. Unlike exchange-traded REITs, nontraded REITs don’t trade on a national securities exchange and they usually are illiquid for at least eight years.

High fees may come along with Nontraded REITS. These fees can eat away at returns. Fees could include front-end fees as high as 15% of the per share price.

The opportunity to redeem nontraded REIT shares is typically limited. Only limited diversification is possible, and there a are real risks involved in getting involved in the real estate market.

In its Public Non-Traded REIT Tip Sheet, FINRA told members of the investing public:

· Don’t invest too much money in one REIT or in multiple REITs that belong to the same family.

· Older investors should be wary of investing a substantial chunk of their retirement funds in nontraded REITs.

· Your initial investment is not guaranteed.

· Don’t decide to invest in a non-traded REIT based on the distributions that are coming from it at the time you invest. Distributions may be suspended or stopped completely.

· Redemption policies are subject to change.

· Be cautious about claims that a non-traded REIT is getting ready to go public. This process could take a long time or may not happen at all.

FINRA is also warning about sales pitches and collateral that tout simple reasons for investing in non-traded REITs. The regulator suggests that prospective investors inquire about how much a representative and/or firm is getting paid in fees or commissions for the investment. Also, it is important to have your adviser or broker tell you why they think buying an REIT investment is good for your portfolio and /or will help you to meet your investment goals.

Nontraded REIT Fraud
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Financial Industry Regulatory Authority