What Are the Different Types of REIT Investments?

Investing in real estate can require a large upfront investment, and money can be tied up for months or even years at a time. Real Estate Investment Trusts, or REIT investments, are a way to gain access to the real estate asset class in a simpler fashion than purchasing assets. An REIT is an index that trades like an individual stock.

REIT investments contain exposure to commercial properties, such as shopping malls. There are some REITs that are non-listed and cannot be purchased the same way as a public stock. Certain REIT investments might focus on single-tenant properties, while others might only purchase commercial properties where there are multiple renters.

A non-listed REIT has to list its investment vehicle with a regulatory agency even though shares do not trade on a stock exchange. These securities can be purchased with a broker dealer for a fee and commission, and some of that expense will be directed to the sponsor or issuer of the nonpublic REIT. These fees tend to be higher versus purchasing public REITs.

Usually, non-listed REIT investments sell for a fixed price unlike listed REITs, which experience price movements every trading day in response to market activity. The issuer of a non-listed REIT pays investors dividends from income received on commercial properties, and dividends from nonpublic REIT investments tend to be higher than public REIT dividends. While a listed REIT is considered a liquid investment, non-listed REIT investments are less liquid and cannot be sold as readily. Investors might be limited to withdrawing only a small percentage each year for the duration of the non-listed REIT, and as a result, these securities support a long-term investment strategy.

Public REIT investments list shares to be traded on a major stock exchange under a trading symbol. Investors can purchase and sell these investments similar to the way stocks are bought and sold via a stockbroker. Public REIT investments are a gateway into the commercial real estate market for the average investor. Listed REITs also pay investors a dividend based on income. The fees and commissions paid to brokers for public REITs tend to be lower versus nonpublic REITs.

REITs are in the business of purchasing commercial properties, and some focus on properties of a certain size. For instance, some REITs might be comprised only of single-tenant properties, while others more broadly purchase multi-tenant buildings. Money managers of a single-tenant REIT might only buy property where there is a long-term lease with a reputable tenant in place to ensure steady income.