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What is a Private REIT?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 08 September 2016
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A private REIT is a specific type of Real Estate Investment Trust that is not publicly traded. Private REITs and other REITs called public REITs are part of modern options for investing in real estate through diversified funds. Knowing more about these financial instruments will help investors make the right decisions with their money.

An REIT is a specific real estate fund setup where the operators can avoid some kinds of income tax by distributing the vast majority of revenue to fund holders. This helps investors to recognize benchmarks for gains, while alleviating the tax burden on the REIT leadership. REITs can also provide a lot of diversification by holding different types of real estate properties or financial products related to mortgages. Finance professionals call an REIT that owns and operates rental properties an “equity REIT,” and an REIT that just invests in mortgage backed securities a “mortgage REIT.”

Many countries around the world are home to private REIT funds. Countries in the American, European, Asian, and African continents have their own rules and regulations on REITs, as well as specific timelines of development for these kinds of financial instruments. REITs in various countries are affected by the housing markets in those nations and regions, as well as any particular national legislation or regulation of real estate funds.

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A private REIT is different than the publicly traded REITs that dominate some markets. A private type of REIT often has a fixed time line where the investor deposits money for a set number of years. For example, some private REITs have a timeline of 10 to 12 years. During this time, the money stays in the fund, and it gets distributed at the end of the allotted time period. One criticism of private REIT funds is that the money in these funds is generally less liquid than the money in public REITs. One of the advantages of private REITs is that some of these funds avoid the problems generated by initial public offerings, or IPOs, of public REITs where price fluctuation can provide various challenges.

Those who are interested in investing in either public or private REIT funds can look at the vast array of options available for funds that are focused on different sectors of the real estate market. Investors can choose between commercial or residential REITs. They can choose specialized REIT types like restaurant, hotel, retail space, or government REITs. All of these present their own opportunities for gains and projected annual yields that attract fund holders.

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