REITs: Important Risks for Investors to be Aware of

REITs have become a popular investment option for investors to consider. However, there have been many issues related to investor fraud with REIT investment portfolios. If you are considering investing in REITs or suspect that you have been the victim of investor fraud, it is important to read the information below to learn about your legal rights and potential options for recovery. Our attorneys frequently represent investors in claims for unsuitable REIT losses.

Due to how complex REITs are, many investors cannot easily understand them. A basic definition of REITs is: a real estate trust or company that owns debts (mortgages) or portfolios of real estate assets that can be invested in a variety to include: Commercial, Residential or Industrial real estate options. Where REITs get more complex is the differences between Publically Traded REITs and Non-Traded REITs, which are outlined below.

There are several distinct differences between Publically Traded REITs and Non-Traded REITs. Publically Traded REITs means when the REIT is filed with the SEC and has its shares traded on national stock exchanges. Conversely, Non-Traded REITs file with the SEC, but elect to not trade on national stock exchanges. In terms of liquidity for Non-Traded REITs, redemption programs vary by company and often have limits to amount that can be liquidated along with costly fees. For transaction costs, Publically Traded REITs have the same costs as buying and selling other publically traded stock. However, Non-Traded REITs usually have 10-15% of the total investment charged up front and are subject to management fees and/or back-end fees. Non-Traded REITs are normally managed externally, whereas Publically Traded REITs are usually self-managed. For minimum investment, Non-Traded REITs have a higher minimum usually ranging between $1,000 - $2,500 and Publically Traded REITs have a one share minimum investment buy in. To learn more about the risks associated with Non-Traded REITs vs. Publically Traded REITs, click here.

Before deciding to invest in REITs, whether Publically Traded or Non-Traded REITs, it is important to avoid common investor pitfalls. Consider the list below so that you are fully aware of the nature of the investment contract that you are agreeing to:

A red flag that investors should be aware of are brokers that present misleading sales literature relating to REITs. Many of these materials may include details such as: high yields and stability without including the REITs lack of liquidity, high fees, and lack of diversification risks.

In addition to the preliminary sales materials, there are other documents to review such as: the initial prospectus and prospectus supplements. Additionally, it is highly recommended that investors go to the SEC’s EDGAR database and search the name of the REIT being offered and then look for entries regarding the “Prospectus.” This will ensure that investors have the accurate information that includes any/all potential risks associated with the REIT before they invest their capital.

Many investors do not ask detailed information about various fees charged at any stage of the REIT investment transaction. Hidden fees can be a source of major investment loss to investors through fraudulent practices by brokers.

Click here to learn more about required disclosures that any broker pitching REIT investment portfolios is required to disclose to you before you decide to invest.

Recently, there have been many investor fraud cases associated with REIT portfolios. Silver Law Group is dedicated to representing the interests of investors that have been victims of investor fraud. Our firm has many years of experience recovering investor losses resulting from fraudulent investor schemes. If you suspect that you have been a victim of fraud associated with REITs and have questions regarding your legal rights or potential for recovery, please contact Scott Silver or the Silver Law Group for a complimentary consultation at ssilver@silverlaw.com or toll-free at (800) 975-4345. Our attorneys have reviewed multiple sales materials that mislead investors about REIT risks and the potential for substantial losses.