By Harry Prabandham · Updated September 28, 2026
Investing & Markets
Non-Traded REITs vs. Public REITs: Liquidity, Fees, and Valuation
Public REITs trade daily on exchanges. Non-traded REITs don't list, limit redemptions, and often carry higher fees; both pay mostly ordinary dividends.
Non-Traded REITs vs. Public REITs: Liquidity, Fees, and Valuation
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What is the difference between public and non-traded REITs?
- Both are companies that own or finance income-producing real estate and must distribute most of their taxable income to shareholders.
- Public REITs list their shares on a stock exchange, so prices update continuously and shares can be sold any trading day.
- Non-traded REITs register with the SEC and file reports but do not list their shares, so selling depends on the REIT's redemption program.
- Private REITs, a third type, are neither listed nor SEC-registered and are generally limited to accredited investors.
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What is the difference between public and non-traded REITs?
- Both are companies that own or finance income-producing real estate and must distribute most of their taxable income to shareholders.
- Public REITs list their shares on a stock exchange, so prices update continuously and shares can be sold any trading day.
- Non-traded REITs register with the SEC and file reports but do not list their shares, so selling depends on the REIT's redemption program.
- Private REITs, a third type, are neither listed nor SEC-registered and are generally limited to accredited investors.
How liquid are non-traded REITs?
- Redemption programs typically limit how much can be redeemed each month or quarter and can be reduced or suspended by the board.
- Some redemptions occur at a discount to the stated value, especially for shares held a short time.
- Several large non-traded REITs limited redemptions in 2022 and 2023 when requests exceeded their caps.
- Money that may be needed on short notice is a poor match for these limits.
How do fees compare?
- Public REIT shares and REIT index funds are bought through ordinary brokerage trades and fund expense ratios.
- The SEC has warned that traditional non-traded REITs can carry front-end fees and commissions totaling around 9% to 10% of the investment.
- Newer NAV-based non-traded REITs generally use lower upfront charges but add ongoing management, performance, and servicing fees.
- The offering prospectus lists all fees, and comparing total costs is central to any evaluation.
Why do non-traded REIT values look less volatile?
- Non-traded REITs report a net asset value based on periodic appraisals and internal models, not market trading.
- Appraisal-based values tend to adjust slowly, which can make them look steadier than listed REIT prices.
- Smoothed values can hide declines that have not yet been recognized, which matters for anyone redeeming or buying at that value.
- The SEC has also cautioned that some non-traded REITs pay distributions partly from offering proceeds or borrowings, which reduces value.
How are REIT dividends taxed?
- Most REIT dividends are ordinary income rather than qualified dividends.
- Qualified REIT dividends can be eligible for the 20% Section 199A deduction, made permanent by the 2025 tax law, if you hold the shares more than 45 days.
- Return-of-capital distributions are not taxed when received but lower your basis, increasing gain when you sell.
- Capital gain distributions may include unrecaptured Section 1250 gain taxed at up to 25%; confirm your situation with a CPA.
What should investors review before choosing either?
- Liquidity needs and time horizon, since non-traded REITs may not allow timely exits.
- Total fees, how net asset value is determined, and how distributions have been funded.
- Concentration by property type and geography, and the amount of debt used.
- How the holding fits alongside home equity and any other real estate already owned.
Key takeaways
- Public REITs trade daily; non-traded REITs rely on redemption programs that can be limited or suspended.
- Non-traded REITs have generally carried higher fees, and appraisal-based values can understate volatility.
- Most REIT dividends are taxed as ordinary income, with a possible 20% Section 199A deduction.
- Reading the prospectus for fees, valuation, and redemption terms is essential.
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