The Securities Lawyers have seen many clients suffer due to misguided investment advice. Understanding the risks of certain types of investments, such as non-traded REITs, is essential to a healthy portfolio. Non-traded REITs are a high-risk real estate investment due to the fact that they are illiquid for long periods of time.
Non-traded REITs were a really big problem. They still exist, but they became a real big problem right before sort of the housing collapse.
Now what a non-traded REIT is, a REIT is an acronym for a real estate investment trust. And so it's a way for a group of people to pool their money together to be able to buy real estate, and this usually isn't single family homes. It's usually large pieces of real estate. It might be buildings downtown Chicago, that type of thing.
The problem with the non-traded type, because there are some REITs that you can just buy on the stock market and there's a ticker symbol. You buy and sell it and it has a changing price, and that can be a good way to diversify somebody's portfolio. But the non-traded ones are fraught with problems because they're illiquid. You can't sell it, and so one of the things that we often see, they're sold as a limited time investment. They'll say it's a two-year investment, and you get 9% return from this investment, but the reality is it's only a two-year investment if a certain set of circumstances comes into play. And if it doesn't, you can't sell it. And think about what that means. If you own a stock and it drops 20% and you decide you can't afford any more losses, you can sell it that day. It's not fun, took a painful 20% loss, but you can move on. If you have a non-traded REIT and it takes a similar downturn you're stuck. You're riding that thing all the way down to the basement if it goes down, because there's no ability to sell that in the open market or to get rid of it.
And so it's a real problem. It creates an issue for investors who have a shorter time horizon or a lower risk tolerance because they're very risky. Even just by their nature of being non-traded they're very risky, and so investors should really be cautious about getting involved in non-traded REITs.