There are several different kinds of REITs. Exchange-traded REITs are securities that sell like stock on the major exchanges and directly invest in real estate. Equity REITs invest in and own properties. They are responsible for the value of their real estate assets and generate revenue from renting their properties. Mortgage REITs loan money to owners of real estate for mortgages or purchase existing mortgages or mortgage-backed securities. Their revenues are generated by the interest they earn on the mortgage loans. Hybrid REITs combine the investment strategies of equity and mortgage REITs by investing in both properties and mortgages.
Non-traded REITs are Real Estate Investment Trusts that are not traded on a securities exchange.
Non-traded REITs come with significant risks. They are illiquid, high-commission, and often dictate when investors can redeem their shares. A non-traded REIT may be illiquid for long periods of time, and front-end fees can be as much as 15% – much higher than a traded REIT due to its limited secondary market. And although the products themselves raise money by selling shares to investors, the broker-dealers collect hefty commissions from their sale. Moreover, early redemption of a non-traded REIT can result in excessive fees that lower an investor’s total return.
Brokers and brokerage firms have an obligation to make sure their investors are fully informed of the risks associated with a REIT investment, and to make sure REITs are a suitable investment for their clients. If you believe you have been defrauded by a REIT investment, it’s advisable to have an experienced lawyer review your case.
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