How much of a portfolio should sit in a REIT with a repurchase window instead of a sell button

Question

Income-focused investors often land on public non-traded REITs, the registered kind with audited financials and a $2,500 minimum, and the harder question is always position size rather than the structure itself. One view treats it like any long-term real estate allocation: an investor would not blink at holding most of their net worth in a rental house that cannot be sold in a week, so an illiquid REIT at 20 to 30 percent of an investment account is not unusual, and the income is the point, the lockup being what the investor is paid to accept. The opposing view is that illiquidity compounds. A rental house can at least be listed, mortgaged against, or sold to a neighbor. A non-traded REIT has one door, and the sponsor controls how wide it opens, with quarterly repurchase often capped. That argues for sizing the position so that being unable to exit for two years is annoying rather than a problem. A middle position, and probably the more useful one, sets the size by how long the money can be left alone rather than by a fixed percentage. If the horizon is genuinely ten years, the cap matters little. If there is any real chance the money is needed in three, no percentage is safe, and the position should be sized accordingly rather than benchmarked against an equivalent listed holding.

ryanmck27 · Answer

The horizon framing is the one that survived contact with the offering documents for me. Percentages are a way of not answering the question. A ten percent position you need next spring is worse than a forty percent position you genuinely won't touch until 2036.

Where I'd push back on your rental comparison, Marlow, is that the borrowing option isn't symmetric. You can put a loan against a house you own. You generally can't borrow against non-traded REIT shares on any decent terms, because there's no market price for a lender to mark against and transfer is restricted. So the rental gives you two exits and this gives you one. That changed my sizing more than any percentage rule.

One more thing worth pulling out of the documents rather than the brochure. Repurchase plans usually have a cap stated as a share of net asset value per quarter, and they're typically subject to the board suspending or modifying them. Read the actual language on suspension, since that clause is the difference between a slow exit and no exit. Confirm the current terms in writing with the sponsor before you fund, and how much of your own picture belongs in an illiquid position is a conversation for someone licensed to see all of it.

How much of a portfolio should sit in a REIT with a repurchase window instead of a sell button

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