If not, you might want to ask, “why not?” With the current volatility in the equity markets, you may want to know what alternative investments you can make that have the objectives of providing some stability in your portfolio, potential to keep up with inflation, as well as a stream of income. And don’t forget that old rule of thumb: with every negative; there lies a positive. The negative aspects of today’s credit crisis have revealed many opportunities in the real estate world.

Consider, for instance, a non-traded real estate investment trust (REIT). When most folks think of investing in real estate, the first things that come to mind are our home, rental properties, or a raw piece of land that is destined to grow in value. Or, we think of the super wealthy (Donald Trump, Ted Turner….) who are able to invest in class ‘A’ commercial property like shopping centers, office buildings, hotels, etc. Well, I have some good news: these class ‘A’ properties are available to average investors through non-traded REITS.

So, what are they?
A REIT (real estate investment trust) is a corporation who uses a pool of money derived from individual investors like you and me to purchase several properties and, in some instances, the debt on real estate properties. Some REITs specialize in a particular type of real estate-such as shopping centers-and/or they concentrate on different geographical regions based on demographic studies of those areas. Therefore, you can have a multitude of options which allow you to diversify your REIT investments.

What do they offer?

• Generally, non-traded REITs offer a steady stream of income on a monthly or quarterly basis generated from rent income of the properties held within the REIT portfolio. To comply with Uncle Sam’s rules, a REIT is required to pay out 90% of its annual taxable income to its investors, like you.
• Because you actually own the real estate, you can claim depreciation of these assets from the REIT against your income, which is generally subject to federal and state income tax.
• A non-traded REIT is simply what it states: non-traded on any exchange (NYSE or AMEX). Therefore, unlike a publicly, traded REIT, the value of the non-traded REIT does not fluctuate daily.
• Most real estate, as you already know, has potential for capital appreciation. Well, any proceeds from the appreciation acknowledged at the time the REIT is liquidated or sold will come back to the investors, like you.
• A REIT is on your side. If it makes money you make money. The professionals employed by the REIT conduct the research on available properties for purchase, make the purchases, and manage the properties inside the REIT in line with its objectives.

 Any catches?
Like all real estate, non-traded REITs are an illiquid investment and there are no guarantees on the returns. Real estate is only an option for investors with a long-term horizon (7 to 10 years). There are also expenses and fees with REITs along with risks associated with the economy and the area in which the properties are purchased. Furthermore, just because it is a non-traded REIT does not mean it is a good real estate investment or a good investment option for you. So don’t try to do the job alone. Work with your financial advisor to find companies with well-positioned balance sheets, a solid, experienced management team and a business plan that meets your investment objectives.

This should not be considered individual investment advice.  You should consider your individual investment objectives and risk tolerances before making any investment decision.