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These days you also have the opportunity to invest private REITs. These REITs are not traded on the stock exchange, as their names imply. In the past, only accredited investors could invest in them and the instruments had high investment minimums.
However in the past decade, private REITs have become extremely popular and you will hear of them being also pushed a crowdfunded REITs with one of the more prominent examples being Cardone Capital run by entrepreneur and You Tube influencer Grant Cardone.
When you buy a private REIT, you are buying units in the fund directly from the company. There are no share since these companies are not publicly traded. If you wish to sell your units, you will have to sell them to other investor or back to he REIT itself. This makes it tough to exit your investment. However, private REITs tend to have a few advantages over the average public REIT.
They pay a much higher yield for starters while only requiring a $1,000 minimum, investment for example pays 9,75% per year and you can invest in them through your IRA account. However, there are some catches you must keep in mind before investing in a private REIT.
Your money is being placed in a private fund which means y8ou have to do as the fund manager says. Typically, REIT fund managers impose lock up periods. A look up is phenomenon borrowed from the hedge fund would where investors have to keep their money in the fund for a certain period of time before they are allowed to withdraw it. The typical lockup lasts for around six months, but some private REITs have lockups that are as long as a year.
Many fund also impose redemption fees. For example, private REIT upside avenue charge two percent early withdrawal fees in the second year and a one percent fee in the third. This fee is referred to as early withdraw since the fund manager expects investors to remain in the fund for the fund’s entire lifespan. Each fund is typically tied to a single property and investors earn returns directly from the rents and capital gains that the property experiences.
Most REITs can last for as long as decade and might impose a minimum investment period of five years. Understand that the lockup is different from the minimum investment period of five years. Understand that the lockup is different from the minimum investment. During the lockup period. You would not have access to your funds, no matter what. We recommended say away from private REITS.
