By Eric Peters, Fall 2017 IAC Student Intern
I’m a little REIT trust,
Real estate packed.
Is how I’m backed.
Specialized in one type,
A typical fact.
Residential, commercial knacks.
Three types of REIT stock,
Know what you like.
Hybrid’s a type!
Leveraging is crucial,
Keep safety in sight.
Debt can bring,
Your fears to light.
Non-traded REIT funds,
Have unique risks.
Harder to list.
Tempting for certain,
High dividend yields,
But higher up-front fees,
Traded or not, know,
The SEC’s tight.
All must be registered,
And come to the light.
When people try to sell to you,
And nothing feels right,
Check with EDGAR
And read what you might.
- REITs are companies that own (and typically operates) income-producing real estate or real estate-related assets
- EX: office buildings, shopping malls, apartments, hotels, mortgages, etc.
- Most REITs specialize in a specific type of real estate (apts.)
- EX: retail REITs, residential REITs, industrial REITs, etc.
- 3 categories:
- ) Equity REITs à most (income producing real estate)
- ) Mortgage REITs à more leveraged
- ) Hybrid REITs
- Many are publicly traded and SEC registered
- Some are registered with the SEC, but not publicly traded
- ALL are registered with SEC
- Look at their disclosure filings with the SEC
- Non-Traded REIT Risks: à they have higher dividend yields than publicly traded REITs
- lack of liquidity on open market
- Hard to value the shares à they typically don’t value their shares until 18 months after their offering closes
- Dividends may be paid from offering proceeds and borrowings
- Typically have an external manager instead of their own employees à can lead to conflicts of interests with shareholders (external manager is not aligned with shareholder interests)
- Can buy and trade like any other stock (common, pref., or debt securities)
- Non-traded REITs typically have HIGH up-front fees (typically 9-10% of the investment)
- Be wary of people who try to sell you REITs that are not registered with SEC
- Check EDGAR
If you want to learn more about REITs, check out the following websites: