Why Ray Lucia Likes Nontraded REITs

In a comment left on my review of Ray Lucia’s Buckets of Money this morning, Kirk wanted to know what Ray Lucia likes about nontraded REITs. Here is what I found:

• Nontraded REITs do not have the volatility that public REITs have.

• Nontraded REITs can bring in capital for purchasing properties. Public REITs cannot raise funds as easily (they can borrow or issue new shares). According to Lucia, this could put nontraded REITs in a better position to get the best deal and the most diversification. I’m not sure how bringing in new capital doesn’t negatively affect current owners of nontraded REITs.

• Nontraded REITs are usually bigger than public REITs and are therefore more diversified.

I found this point confusing because a few paragraphs prior, Lucia wrote this: “…nontraded REITs don’t fluctuate daily in price. They are usually private en route to becoming a listed, or public, company, or the properties are scheduled to be sold in the marketplace.”

• Part of the sales load on nontraded REITs goes to pay for due diligence. Lucia says that public REITs aren’t in the acquisition phase like nontraded REITs are. Acquiring properties requires due diligence.

Lucia tries to put a positive spin on loads:

“Instead of seeing load, transparent or otherwise, as some burdensome surcharge, look at it as a positive way to ensure the private REIT will have the capital to put to work and get a good deal for you. What’s more, if you buy a REIT that’s in an acquisition mode, you don’t buy it to sell right away. You need to hold it long enough to recoup those expenses. Spread out over the length of the time you own the REIT, th eload may not amount to much.”

Sounds kind of “salesy” to me.