March 27, 2015 Admin | March 27, 2015 What is the difference between publicly traded REITs and privately traded REITs? Which one should be avoided? Why?
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Public REITS are very good an private REITS are very bad is what it boils down too. A public REIT holds stock in commercial real estate in a growing area. A private Reit own some kind of real estate that they dont tell you much about, they lock your money up and they dont really tell you what they have it in. Brokers like private Reits due to the high commissions they get off of them. You want to hold public reits inside a retirement account at a place like Vanguard. Public reits pay a large amount of income and are not tax efficient. Public reits can be one of the best investments that you hold, with an average yearly return close to 11%. Reits can be a great addition to a portfolio. Just stay away from brokers and their private reits.
Nicely said, Garrett. This is tough one. Let’s add to the discussion.
(1) A publicly traded REIT like the Vanguard REIT Index Fund owns 41 individual REITs (wide diversification) at a very low cost (admiral shares are at .10%), with easy access and liquidity (you can get the money whenever you like), and it’s all there to see (pure transparency). Learn more about this fund here:https://personal.vanguard.com/us/funds/snapshot?FundId=5123&FundIntExt=INT#tab=0.
(2) Private REITs require a broker which will increase your costs. It will lock up your money (no transparency and no real liquidity) and you really don’t know what to expect as far as returns. Diversification? No. Buying one private REIT is not diversification.
(3) This is simple. Avoid brokers and you will be able to avoid private REITs. If you want to own stock in commercial Real estate (a very reasonable position) buy that Vanguard REIT Index Fund and feed it over time with future contributions (probably not wise to allow your REIT allocation in your portfolio to go over 20% of your stock total allocation). Educate and ACT.