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Real Estate Trusts

Orange County Real Estate Attorneys Explain Real Estate Trusts

A Real Estate Investment Trust (REIT) is a tax designation for a corporate entity that invests in real estate. REITS enjoy greatly reduced corporate income taxes and in exchange are required to distribute 90% of their earnings in the form of dividends to their investors. However, as an Orange County real estate attorney cautions, not all REITS are alike.

Publicly Traded REITS vs. Non-traded REITs
Publicly traded REITS are those that list on a stock exchange and trade much as any other equity. Although they have performed generally quite well, there are no guarantees that the price will go up or down or if money will be made or not. What is guaranteed however is that the investor will always know the market value and can liquidate whenever desired.

In contrast, non-traded REITS although public, are not traded on any markets. Although the allure of the lack of volatility by not being in the market is appealing, this creates a fundamental problem.

Potential Problems with Non-traded REITs
The primary problem is illiquidity. Non-traded REITs do not trade on any market. Although most offer a sell-back option, this has proven to be less than a guarantee in many cases. Many non-traded REITs have suspended sell-backs due to lack of capital.

Another issue is the high commission, perhaps up to 15%, that are typical. This not only creates an atmosphere that encourages a broker to push non-traded REITs, but it also greatly reduces the earnings, often to minimal or no dividends at all.

Finally, although market fluctuation is not an issue, non-traded REITs can only invest in one sector, real estate. If the investor is not elsewhere diversified in his or her portfolio, that may be too great a risk.

What Can You Do If You Feel Victimized By Investment in a Non-traded REIT?
Many REITs have suspended operations and many are currently the subject of government investigations. If you feel you invested without complete information or were given misleading or false information, you should consult an Orange County real estate attorney who can explain your rights and options. Please do not hesitate to contact the dedicated Orange County real estate attorneys at the Daily Aljian law firm today for a free initial consultation.