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Investing in Real Estate Investment Trusts (REITs) provides an opportunity for individuals to access the real estate market without the challenges of property management. Whether you're investing in publicly traded or non-traded REITs, selling your shares can be a strategic move. In this article, we'll provide insights on how to successfully sell your REIT shares and maximize your potential profits.
Understanding REITs: A Brief Overview
REITs are corporations that engage in the buying, selling, leasing, and management of real estate properties. There are different types of REITs, including publicly traded, non-traded, and private REITs. Publicly traded REITs are listed on securities exchanges, while non-traded REITs are bought and sold through brokers. Private REITs are not publicly traded.
Selling Publicly Traded REITs
Publicly traded REITs are relatively easy to sell since they are traded on well-known securities exchanges. Similar to stocks, you can buy and sell them during trading sessions. Holding publicly traded REIT shares can provide you with monthly or quarterly dividends, and you can potentially earn a profit by selling your shares if the market value of the REIT increases.
The price of a publicly traded REIT unit is determined by market forces and its net asset value. Publicly traded equity REITs have holdings estimated at around $2 trillion worth of assets.
Challenges in Selling Non-Traded REITs
Non-traded REITs are not listed on securities exchanges and tend to invest in larger real estate projects such as apartments, hotels, hospitals, and office buildings. These types of REITs can be illiquid, meaning they cannot be easily converted to cash. Therefore, selling non-traded REITs can be more challenging and may require careful consideration.
The board of directors of non-traded REITs has the power to suspend distributions and redemptions. While the REIT is open to public investors, shareholders may sell their shares back to the REIT. However, once the REIT closes to public investment, early redemption options are no longer available. In such cases, shareholders may attempt to sell their REIT units on the secondary market. However, the price is usually heavily discounted.
Important Considerations Before Selling REIT Shares
When deciding to sell your REIT shares, there are a few key factors to consider:
- Liquidity: Publicly traded REITs offer more liquidity, meaning there is usually a market for buying and selling them. However, be strategic and aim to sell when you can make a profit rather than experiencing a loss.
- Non-Traded REIT Challenges: Selling non-traded REITs can be difficult and expensive. If the redemption scheme is suspended, shareholders have limited options. The value of the REIT may decline, resulting in substantial losses if the directors allow redemption at a discounted price.
- Secondary Market: If redemption is unavailable, selling shares on the secondary market may be an option. However, be prepared for significant discounts, possibly up to 30% or more.
Conclusion
Selling your REIT shares requires careful consideration, especially for non-traded REITs. Publicly traded REITs offer more convenience and liquidity when it comes to selling. However, it's crucial to be strategic and aim for profitable sales. Take into account the potential challenges and consider seeking advice from financial professionals to ensure you make informed decisions.
Remember, this material is for educational purposes only and should not be construed as specific investment advice. Investing in REITs involves risks, and it's essential to understand the market dynamics before making any investment decisions.
Disclaimer: This article contains general information and is not intended to be used as the primary basis for investment decisions. Always consult with a qualified professional before making investment choices.
