Making the REIT Decision: How—and Why—to Understand the Differences Between Publicly Traded and Non-Traded REITs

Overview

In the world of REITs, the question that perplexes many investors and their advisors is how to choose between them. In any given situation, is a non-traded REIT a better investment than a publicly traded REIT? Or does it depend on what type of non-traded REIT you opt for? And how does an investor or advisor go about investing in a REIT, whether it’s publicly traded or non-traded? Are there minimum investments? Limits to liquidity? Terms you need to know?

Here’s a quick look at the differences—as well as the similarities—among REIT classifications along with a glossary to inform any discussion you might have with your clients.

 

What’s a REIT?

Let’s start with the basics: What’s a REIT?

REITs, or real estate investment trusts, started in the 1960s, when federal lawmakers created an instrument for Americans to invest in income-producing commercial real estate. Over the past 60 years, such factors as high dividends, tax advantages, accessibility, liquidity, and portfolio diversification have allowed REITs to flourish, and they have followed a number of different paths.

The lure for many investors is that, rather than being saddled with the responsibilities of maintaining one or several properties—including ongoing maintenance—REIT investors share in the bounty of investments made by holding companies in various properties such as office buildings and shopping centers, which are, in turn, leased by rent-paying tenants.

According to Nareit, a national trade organization that represents REITs, there are currently about 1,100 REITs in the U.S. that have filed federal tax returns.

 

What’s a Publicly Traded REIT?

Shares of publicly traded REITs are traded on a public stock exchange such as the New York Stock Exchange or Nasdaq. As such, publicly traded REITs must register with the Securities and Exchange Commission (SEC), which regulates them. Nareit says more than 225 REITs in the U.S. are registered with the SEC.

An investor may own shares of a traded REIT directly or through an exchange-traded fund (ETF) or mutual fund.

The minimum investment in a traded REIT is normally “pretty modest,” according to the Corporate Finance Institute. For example, someone can invest directly in a publicly traded REIT by purchasing just one share of stock at the current share price.

As with shares in a public company such as Walmart or Apple, an investor can freely buy and sell shares of stock in a publicly traded REIT as they choose. That means an investment in a public REIT is usually liquid; you can sell the stock whenever you’d like. Investors can easily access stock prices for publicly traded REITs.

Publicly traded as well as non-traded REITs often own income-producing properties in a certain category, such as office buildings or shopping centers.

Among publicly traded REITs, Prologis specializes in industrial properties while Equinix owns data centers; Welltower holds healthcare facilities, while Simon Property Group specializes in retail, and AvalonBay Communities is known for its multifamily holdings. Some other public REITs, on the other hand, invest in real estate-related debt, such as mortgages. Non-traded REITs also invest in income-producing assets in various categories.

Publicly traded and non-traded REITs must distribute at least 90% of their taxable income to shareholders as dividends, according to SmartAsset. “This means investors can potentially enjoy a steady stream of income that is typically higher than what many other stocks offer,” SmartAsset says. “REITs can provide a reliable source of passive income, making it especially appealing for retirees and income-focused investors.”

Investors in publicly traded REITs can experience short-term financial losses due to market volatility, though.

And a word of caution: The dividends generated by public REITs are taxed as ordinary income, which can lead to a higher tax rate for some investors than long-term capital gains.

 

How is a Non-Traded REIT Different?

One of the key differences between non-traded REITs and publicly tradedREITs is their valuations. The valuations of non-traded REITs are tied directly to the value of the underlying real estate. On the other hand, the valuations of publicly traded REITs are tied more to the market’s perception of where valuations are headed.

Another key difference: Because shares of non-traded REITs aren’t bought or sold on public stock exchanges, the way shares of publicly traded REITs are, investments are not liquid. As a result, if an investor wants to liquidate some or all of their shares in a non-traded REIT, they often must do so through a redemption program. A redemption occurs when the REIT buys back shares from an investor. Redemptions typically are limited to a certain number per year, and shares might be bought back at a lower price than the original one.

Keep in mind that there are a number of key differences among non-traded REITs:

• Some non-traded REITs are “public,” so they must register with the SEC. Other non-traded REITs are “private,” meaning they aren’t required to register with the SEC. However, shares of neither public nor private non-traded REITs are bought or sold on public stock exchanges.Public non-traded REITs are available to investors with a net worth of at least $350,000, or at least $100,000 in income coupled with a net worth of at least $100,000. Meanwhile, private non-traded REITs may be limited to accredited investors such as pension funds and high-net-worth individuals.
• Public non-traded REITs may have lower requirements for initial investments than private non-traded REIT. Public non-traded REITs typically require an initial investment of at least $1,000 to $2,500, according to Nareit. For private non-traded REITs, the minimum investment is $25,000 to $100,000.

An advantage of non-traded REITs is that their valuations are tied directly to the real estate value, not the market’s perception or guess on where valuations are going. Publicly traded REIT prices are more tied to the sentiment of the market.

Beyond that only “qualified institutional investors” and “accredited investors” can buy or sell shares of a private REIT. Qualified institutional investors include insurance companies, pension funds, and endowment funds. Accredited investors are individuals with a net worth of $1 million or more who have earned an annual income of more than $200,000 for each of the previous two years.

 

The NAV REIT Difference

Like other non-traded  REITs, shares of NAV REITs are not publicly traded on a stock exchange. But unlike other non-traded REITs, which generally have a fixed offering price, NAV REITs regularly calculate and disclose the net asset value (NAV) of their shares, conduct offerings of their stock at prices based on the NAV per share, and repurchase shares of stock at prices based on the NAV per share.

The primary benefit of a NAV REIT over a public REIT is that the NAV per share tends to be less volatile than the share price of a public REIT, which often trade below or above NAV, according to the DLA Piper law firm. “For many investors and advisors, this relatively greater price stability enables NAV REITs to serve as a vehicle to reduce risk in a diversified portfolio,” the firm says.

According to a 2025 paper from the Ohio State University’s Fisher School of Business, NAV REITs “have grown dramatically over the past decade—especially since 2017—and now represent a major alternative to public REITs in providing individual investors with a way to invest in [commercial real estate] without direct ownership.”

One other key advantage that NAV REITs have over their public counterparts involves size. Because they’re usually smaller than public REITs, NAV REITs can respond more quickly to market conditions, hunting for investment opportunities that public REITs are likely to overlook.

 

Perpetual REITs

Not all NAV REITs are the same: Some NAV REITs, which may be registered or non-registered, are what’s called “perpetual.” This means that, unlike other non-traded REITsthey don’t have a fixed end date (such as 10 or 15 years), they raise their capital through continuous stock offerings, and they can offer liquidity to investors through share repurchase programs.

As a result, investors are generally able to redeem shares at set intervals, such as every quarter, and they can initiate redemption requests when they want, rather than relying on the manager’s discretion after investments are exited. And critically, because the funds are not subject to an end date, investors can reinvest their distributions over time without the pressure of figuring out what to do when the REIT’s end date approaches. Some tax deferral benefits are available, no matter whether the distributions are reinvested or not reinvested..

 

Making the Decision

Each type of REIT offers its own advantages. The key to choosing one over another lies in determining what your long-term goals are. What’s your tolerance for volatility? How important is liquidity? Is a fixed end date a benefit or a hindrance? How much do you or your clients have to invest? What sorts of properties are you interested in? What do you know about the fund in which you’d be investing in terms of its experience, valuation, market exposure, track record, and capitalization, and even its long-term business plan?

There are many choices—and many opportunities—in the REIT universe. Understanding the differences, the benefits, and even the vocabulary (see sidebar) is a first step toward making REITs work for you.