Also view part 2 of my review here
Additional points: It has been suggested that non-traded REIT’s in general are less volatile than publicly traded REITs. This is a red herring assertion on many levels. For starters, if an investor desires less volatility, then non-traded REITs should be compared to REIT index funds. Index funds are inherently less volatile than individual REITs because they are highly diversified. For example Vanguard’s REIT index fund VNQ is diversified across 148 different companies, all of which have market caps of at least 100 million dollars.
Nevertheless, for what it’s worth, are non-traded REITs less volatile than publicly traded REITs? Non-traded REIT’s face the SAME market forces as public REITs. Renters will pay what the market dictates, real estate will be bought and sold for what the market dictates, etc. A seemingly “less volatile” share price of a non-traded REIT can be illusionary and misleading. Why? Let me quote the Securities Litigation and Consulting Group…
“The market price of a non-traded REIT does not reflect the underlying value of the REIT’s holdings nor the potential for future dividend payments. In a free and efficient market, an asset’s price fluctuates with investors’ expectations for the changes in the asset’s future value. In equity market, the share price carries information about investor’s beliefs about future dividends and value growth, including expectations regarding the ability of that firm to sustain its business model. The prices of non-traded REITs do not reflect this information because they are not openly traded – prices are set at the discretion of management, and can be highly misleading as they can be unrelated to the value of the REIT or its holdings. A more accurate measure of a non-traded REIT’s value would be the net asset value of its holdings.”
The idea that nontraded REITs aren’t volatile is a “misdirection,” says Joseph Harvey of Cohen & Steers, one of the biggest REIT investors in the world. He says “You can’t measure the volatility of these investments because they do not trade.”
While they are not exposed to the day-to-day volatility of the public markets, REIT NAVs are exposed to economic volatility. Real estate is not immune to economic changes.
But most importantly, what really matters is the end result (return on investment) when comparing a non-traded REIT to its BENCHMARK — not the S&P 500 index.
Another problem with REITs is that you have the ADDED cost of winding down the whole operation by selling property.
Do your due diligence! Here’s some links pertaining to this review…
UPDATE: According to a YouTube poster, most if not all of the current Rich Uncles dividend is not coming from rental income. He says “The latest financial filing I looked at indicated that the REIT currently is losing money on an operating cash flow basis, which means they’re paying investors with borrowed money or the dividend is really a return of principal.”
If you need money advice then hire a fee-only fiduciary on a one-time or one-task basis. This video is not intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy, hold or sell, or as an endorsement, of any company, security, fund, product or other offering.