A guy on the crew has money in a private REIT he can't touch for two years

Framing job last week, one of the guys says he put 30k into a private REIT through some platform and he can't get it out for two years. He said it like it was a good thing. I've been putting money in an index fund and not thinking about it, so this was new to me.

What I don't understand is why anyone signs up for not being able to sell. If it's real estate and it makes money, fine, but I can buy a real estate fund on my phone and sell it the same day. What is the two years buying him?

Also he used the words private and non-traded like they were the same thing and I don't know if they are. Is there a difference between what he bought and what a normal person can buy? He makes good money but he's a framer, not a hedge fund.

Starting from close to zero here so plain answers welcome.

Answer

1tonyv88SO4CPRO6

The two years is buying him the manager not having to sell buildings at a bad time because a bunch of shareholders panicked in the same week. When a fund trades on an exchange and everyone heads for the door, the manager either sells property into a weak market or borrows. When nobody can leave quickly, that pressure doesn't exist.

Whether that's worth giving up your ability to get your own money out is a separate question, and it depends entirely on whether he needs that 30k in the next few years. I manage property for owners on both sides of that. The ones who are fine with lockups are the ones who forgot the money existed.

3 replies

1dmitri_v6CapitalPRO6

They're related terms and they're not identical, which is why your framer sounded confused.

Non-traded means the shares don't trade on an exchange. Within that there are two versions. A public non-traded REIT registers with the SEC, files audited financials, and is generally open to ordinary investors, often with a minimum around 2,500 through an advisor or a platform. A private non-traded REIT is exempt from that registration and is typically limited to people who meet income or net worth tests, with minimums that run a lot higher.

So the same phrase covers a vehicle with public filings you can read and a vehicle where the disclosure is whatever the sponsor gives you. If your friend went through a crowdfunding platform for 30k, the first version is more likely, but he'd have to look at his own documents. Whether he qualifies for anything in particular is a question for someone licensed to answer it.

3ryanmck27SC2C

The part I'd hold onto from @warrant's post is that with the registered version you can go read the filings yourself before you commit a dollar. Ask him to pull up the prospectus. If he can't find one, that tells you which of the two things he bought.