If you are like most people, you can often get lost in all the terminology associated with financial services. Sometimes figuring out the definitions of certain portfolio choices can be difficult enough, let alone understanding the pros and cons of investing in such portfolios. Difficulty in understanding various options is one of the top reasons many individuals turn to wealth management organizations such as AOG Wealth Management for help.
Access to Commercial Real Estate Portfolios
Real Estate Investment Trusts are companies that provide access to individual investors for income-generating real estate. These companies buy, manage or finance income-generating properties using the pooled capital of multiple investors. These investors can then earn dividends on these properties without having any direct relationship with the properties themselves. Many REITs are traded publicly and can be bought and sold like stocks on major securities exchanges. Some, however, are not publicly traded and are governed by different rules, such as those written about by Fred Baerenz.
Nontraded REITs provide retail investors access to real estate investments that are largely inaccessible. Though these non-traded investments still need to be registered with the Securities and Exchange Commission and are governed by it, they are specifically designed to reduce or eliminate taxes while providing dividends. These tax benefits seem lucrative but come with a cost as REITs are largely illiquid for extensive periods of time due to their not being publicly traded. They also may not pay steady dividends at the beginning.
Like most financial investments, nontraded REITs have pros and cons, and understanding these pros and cons is key to matching the investment with your needs. If you are looking for longer-term investments, then a nontraded REIT may be a great way to get dividends with reduced tax liability. If, however, you need your investments to be more liquid, these may be an investment type to avoid.