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How is a Non-Traded Real Estate Investment Trust (NTREIT) different from a Limited Real Estate Partnership...or are they different at all? An advusir said I'd receuve about 6% but principal would be safe. I'm not so sure.

I'm a recently retired teacher and have about $75,000 (as yet, untaxed) in various investments. I'm looking for some monthly cash and safety of principal. An advisor suggested putting about 1/3 or my IRA into a NTREIT, though I wouldn't have access to the principal.

I invested in Carlyle XIII Limited Partnership a number of years ago and watched everything slowly go down the drain.

Jul 28, 2013 by sharron in  |  Flag
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4 votes

If he said "Principle will be Safe" he is misrepresenting the product. Your principle is at risk. You are investing in a company - just as you do when you buy an individual stock. Yes the company owns tangible income producing assets (real estate) which presumably will never lose all its value, but the company can also take on debt. In the event the company runs into trouble the debt will get paid before you do. While the risk of losing all of your money may be low, the risk of never recouping all of your money is very real. Just ask the many investors who locked in these deals before the financial crisis. Many were severely burned and lost a lot of money. There are not necessarily bad deals, but there are many risks, all of which have been spelled out for you in writing in the offering document. I am shocked that they were not explained by your advisor as well. There are some techical differences from a LREP, but not important to you. I generally advise people to avoid putting more than 10-15% of their assets in any single stock, and a non-traded REIT is no different.

3 Comments   |  Flag   |  Jul 28, 2013 from Bridgewater, NJ
James D. Kinney, CFP®

Sorry, I missed where you said you had prior experience. So you know these deals can go bad based on prior experience. No difference. I am willing to bet that your "advisor" will not put the words "Your Principle will be Safe" in writing.

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Flag |  Jul 28, 2013 near Bridgewater, NJ
James D. Kinney, CFP®

And in fact this is MORE risky than investing in many stocks, since you do not have the ability to freely liquidate if things are going poorly. If the business is mismanaged or investments turn sour, you can be trapped in the investment and have to just hope and pray it turns around. Again, there are some very good private REIT's, but you need to be careful. I am just not sure the investment is right for you given your limited assets and age. I think you should find a local fee only advisor and get some unbiased advice that is not driven by sales commission.

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Flag |  Jul 28, 2013 near Bridgewater, NJ
sharron

Thank you. The "prior experience" was with Carlyle-XIII LREP which slowly, but surely, bled to death. I never want to get into something like this again and worried the NTREIT/REIT would be the same breed. Perhaps I misunderstood or misspoke about what the advisor said about my pricipal being safe, as it was our first meeting. No paperwork was exchanged, but I took notes which indicated: the amt. I put in is "not liquid, there is no mkt. risk, it pays 6.5 - 6.8%, it is sold periodically but I can't touch it for one year, after that there is a 5% penalty until after the 4th year." That's basically it, but I appreciate the time, wisdom and comments from you (and Rich Winer - see comment below). I "just had a feeling" that if it was too difficult to explain clearly, and if I couldn't get my hands on it," something was wrong.

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Flag |  Jul 29, 2013

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Alex Bentley Level 18

I will echo the comments of others by saying do not do this. There is absolutely no reason to buy a non-traded REIT.

1 Comment   |  Flag   |  Jul 28, 2013 from Pacific Palisades, CA
sharron

Thank ;you very much, Alex. I can't imagine how there could be "no market risk," as the advisor told me, word-for-word, in my notes.

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Flag |  Jul 29, 2013

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Rich Winer Level 20

I agree with James. Not all limited real estate partnerships are non-traded REITS. However, they are all illiquid. Non-traded REITS are generally intended to provide income/cash flow. However, the principal can lose value. I have never liked these investments and my clients have never expressed any interest in owning them. We prefer investments we can get in and out of easily. There are plenty of good publicly-traded REITS.

My fellow advisors who sell non-traded REITS claim their clients like the fact that the values of the REITS are not shown daily and that their clients are less likely to freak out during adverse market conditions. I don't believe that and know one individual who got a nasty surprise when he finally saw the appraised value of his investment, found that it was about 10% of what he initially invested and he could not get out of the investment. Making matters worse, due to the adverse market conditions, the real estate company had extended the required hold period, making it harder for investors to get out. And this was Behringer Harvard, one of the most highly respected non-traded REIT providers.

One of my friends compared owning a non-traded REIT to owning a home. He said "Would you sell your home just because the value was down?" No, but I don't consider a home to be an investment.

Based on your past experience, I assume you will avoid non-traded REITS and I think you would be wise to do so.

1 Comment   |  Flag   |  Jul 28, 2013 from Woodland Hills, CA
sharron

Dear Rich: I mentioned you in my comment above. Thanks.

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Flag |  Jul 29, 2013

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Andy Tilp, CFP® Level 16

Stay away from Non-Traded REITs. See the FINRA investor alert at http://www.finra.org/investors/protectyourself/investoralerts/reits/p124232 for more details.

Or just google FINRA Private REIT.

Comment   |  Flag   |  Jul 30, 2013 from Sherwood, OR

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NTREITS and Limited Real Estate Partnerships have some structural differences, but basically offer similar investment characteristics. NTREITS can be good, but they are always risky investments. There is no guarantee of principal, fees can often be misleading, and very importantly, there is typically no exit strategy. There may be a suggestion of an exit strategy in 3-5 years, but very often there is no incentive for management to actually exit, as it ends their management fees.

If you do your homework, you can find a good REIT to invest in, but the industry is fraught with REITS that are very risky. I see no compelling reason to take on unnecessary risk. I would never recommend you put more than 10% of you assets in this type of investment.

Comment   |  Flag   |  Aug 02, 2013 from Delray Beach, FL

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