Public vs. Private REITs: Key Differences Every Investor Should Know

Public vs. Private REITs: Key Differences Every Investor Should Know

Not all REITs are created equal — and one of the most important distinctions you will encounter as a beginning REIT investor is the difference between public and private REITs.

Public REITs trade on major stock exchanges and are available to virtually any investor. Private REITs, by contrast, are exempt from Securities and Exchange Commission (SEC) registration and are typically restricted to accredited investors and institutional buyers. The difference between the two structures affects how you buy shares, how easily you can sell them, how much information you can access about the investment, and what fees you may pay.

By the end of this article, you will understand what makes a REIT public or private, how each type works, and the key trade-offs investors face when choosing between them.

What Is a Public REIT?

A public REIT is a real estate investment trust that is registered with the SEC and whose shares trade on a national stock exchange such as the New York Stock Exchange (NYSE) or NASDAQ. Public REITs are sometimes called exchange-traded REITs or publicly traded REITs.

Because public REITs are listed on exchanges, investors can buy and sell shares during regular trading hours, just like any publicly traded stock. The share price is determined by market supply and demand and is visible to anyone with access to a financial website or brokerage platform.

Public REITs must comply with SEC reporting requirements, which means they regularly file quarterly reports (Form 10-Q), annual reports (Form 10-K), and other disclosures. These filings are publicly available through the SEC's EDGAR database and give investors insight into the REIT's finances, properties, strategy, and management.

What Is a Private REIT?

A private REIT is a real estate investment trust that is exempt from SEC registration and whose shares do not trade on a national stock exchange. According to Nareit, the National Association of Real Estate Investment Trusts, private REITs issue shares pursuant to exemptions from securities registration requirements, including rules set forth under Regulation D of the Securities Act of 1933.

Because private REITs are not registered with the SEC, they are not required to file the same regular disclosure reports as public REITs. This means less publicly available information about the investment's performance and finances.

Private REITs are generally sold only to institutional investors — such as large pension funds and endowments — and to accredited investors. According to Nareit, an accredited investor is generally defined as an individual with a net worth of at least $1 million (excluding primary residence) or with income exceeding $200,000 in each of the two prior years ($300,000 with a spouse).

Note: The SEC defines accredited investor status and this definition may be updated over time. Investors should verify the current requirements directly with the SEC.

The Three Main REIT Categories by Registration Status

It is important to understand that the terms "public" and "private" refer to whether a REIT's shares are registered with the SEC and whether they trade on a public exchange. There are actually three main categories:

1. Publicly Traded REITs: Registered with the SEC, listed and traded on a national stock exchange. Open to all investors. Most liquid and transparent.
2. Public Non-Traded REITs: Registered with the SEC and file regular SEC reports, but shares do NOT trade on a national exchange. Less liquid than exchange-traded REITs.
3. Private REITs: Not registered with the SEC. Shares do not trade on any exchange. Available only to accredited investors and institutional buyers. Least liquid and least transparent.

This article focuses on the distinction between publicly traded REITs (the type most retail investors encounter) and private REITs. The investor.gov Investor Bulletin on Non-Traded REITs published by the SEC's Office of Investor Education and Advocacy clearly describes these distinctions for investors.

How Each Type Works in Practice

Investing in a Public REIT

Investing in a publicly traded REIT works similarly to buying a stock. You open a brokerage account, search for a REIT by its ticker symbol, and purchase shares. There is no minimum investment beyond the price of one share, though some brokers allow fractional shares. Transaction costs are the same as for any other publicly traded stock.

Because the shares are listed on an exchange, the price changes throughout the trading day based on investor sentiment, interest rate expectations, property market conditions, and other factors. You can sell your shares at any point during market hours.

Investing in a Private REIT

Investing in a private REIT is a different process. Private REITs are sold through private placements — typically through broker-dealers, investment advisors, or directly through the REIT sponsor. There is no public marketplace where you can check a price or sell your shares.

According to Nareit, minimum investment amounts for private REITs typically range from $1,000 to $25,000, though private REITs designed specifically for institutional or accredited investors may require much higher minimums. Fees can include formation fees, annual management fees, and a percentage of profits sometimes called a "promoted interest."

Private REITs do not provide daily pricing. Instead, share values may be determined through periodic third-party appraisals of the underlying real estate assets. This means it can be difficult to know what your investment is worth at any given point in time.

Key Differences Between Public and Private REITs

Liquidity

Liquidity refers to how easily you can buy or sell an investment and convert it to cash. Public REITs are highly liquid — you can sell shares quickly during normal trading hours. According to investor.gov, an investment in publicly traded REITs is typically a liquid investment.

Private REITs are the opposite. Shares are not traded on any public securities exchange and are generally not liquid. According to Nareit, redemption programs for private REIT shares vary by company and may be limited, non-existent, and subject to change. Investors should expect to commit capital for an extended period — potentially five to ten years or more — before a liquidity event such as a company sale or public listing occurs.

SEC Registration and Regulatory Oversight

Public REITs are registered with the SEC and subject to ongoing disclosure requirements. They must file regular quarterly and annual financial reports, and this information is publicly available through the SEC's EDGAR database. This level of transparency allows investors and analysts to closely examine the REIT's performance, management, portfolio, and risks.

Private REITs are exempt from SEC registration under Regulation D or other securities law exemptions. As noted by investor.gov, private REITs do not regularly file disclosure reports with the SEC, which can make it difficult for investors to stay informed about their investment.

Investor Access Requirements

Public REITs are open to virtually all investors. Anyone with a brokerage account can buy shares, and there is no income or net worth requirement.

Private REITs are restricted to accredited investors and institutional buyers. These requirements exist because the SEC has determined that accredited investors have sufficient financial sophistication and resources to evaluate and bear the risks of unregistered securities.

Transparency and Information

For publicly traded REITs, a wide range of public information is available — from SEC filings and analyst reports to real-time stock pricing and independent performance benchmarks. Nareit and other organizations track and publish extensive data on publicly traded REIT performance.

For private REITs, according to Nareit, there is no public or independent source of performance data available for tracking private REITs. Investors rely primarily on information provided by the REIT's sponsor or manager.

Fees and Transaction Costs

Transaction costs for public REITs are the same as for buying or selling any publicly traded stock — typically a brokerage commission, which at many platforms is now $0 for online trades.

Private REITs can carry significantly higher fees. According to the SEC's investor.gov bulletin on non-traded REITs, these products can charge upfront fees that may include broker-dealer commissions and organizational costs representing up to 15 percent of the offering price. These fees reduce the amount of capital that is actually invested in real estate assets and can meaningfully affect total returns.

A Hypothetical Example

The following example uses entirely hypothetical numbers to illustrate how the two structures differ. These are not actual market data or performance figures.

Suppose Investor A puts $10,000 into shares of a publicly traded REIT through their brokerage account. They pay a $0 commission online and immediately own shares they can sell any business day. They can look up the share price at any time, read the REIT's SEC filings, and monitor quarterly earnings reports.

Investor B invests $10,000 in a private REIT through a broker-dealer. The private REIT charges an upfront fee of 5% ($500), leaving $9,500 invested. Investor B cannot sell their shares on a market — they must wait for a redemption program or a liquidity event. They receive periodic updates from the sponsor but have no independent way to verify the REIT's current value.

This hypothetical example illustrates why understanding the difference between public and private REITs matters before committing capital.

Why This Distinction Matters to REIT Investors

For most beginning investors, publicly traded REITs are the simpler and more accessible starting point. They offer price transparency, daily liquidity, strong regulatory oversight, and no barriers to entry beyond having a brokerage account.

Private REITs may appeal to institutional investors or high-net-worth individuals seeking real estate exposure that behaves differently from public market pricing. Because private REIT valuations are based on periodic third-party appraisals of actual properties rather than daily stock market prices, they may exhibit lower reported short-term price volatility compared to exchange-traded REITs. However, this comes with the trade-off of greatly reduced liquidity and less transparency.

It is important to note that lower reported volatility in private REITs does not necessarily mean lower risk — it may simply reflect the less frequent valuation of assets, rather than fewer actual economic risks in the underlying properties.

Risks and Considerations

Risks of Public REITs

• Market volatility: Publicly traded REIT share prices can fluctuate significantly with broader stock market sentiment, interest rate changes, and macroeconomic conditions — sometimes independent of the actual performance of the underlying real estate.
• Interest rate sensitivity: Rising interest rates can reduce the appeal of REIT dividends relative to bonds, putting downward pressure on share prices.
• Short-term focus: The pressure of quarterly earnings reporting can influence management decisions in ways that may not always reflect long-term property performance.

Risks of Private REITs

• Illiquidity: Private REITs are illiquid investments that cannot be sold readily in the market. Investors may have to wait years to access their capital.
• Lack of transparency: Without SEC registration and regular public filings, it can be difficult to track the true value and performance of the investment.
• High fees: Upfront and ongoing fees can reduce total returns significantly.
• Conflicts of interest: Private REITs are typically externally managed. The external manager may earn fees based on transactions or assets under management, which may not always align with investor interests.
• Valuation uncertainty: Because shares are priced using periodic appraisals rather than active market trading, it may be difficult to know the true current value of your investment.
• Limited regulatory protection: Private REITs are exempt from SEC registration requirements, meaning they are subject to less regulatory oversight than publicly registered securities.

Common Mistakes to Avoid

• Assuming all REITs are liquid: Only publicly traded REITs offer the daily liquidity of exchange-traded shares. Private and non-traded REITs can tie up capital for years.
• Confusing low volatility with low risk: The less frequent appraisal-based pricing of private REITs means lower reported short-term price swings, but the underlying real estate investments carry economic and market risks regardless.
• Overlooking fees: High upfront fees on private REITs reduce the amount actually invested in real estate. Always factor total costs into your evaluation.
• Ignoring the accredited investor qualification: Private REITs are only available to investors who meet the SEC's accredited investor criteria. Verify your eligibility before pursuing these investments.
• Not reading the prospectus: For non-traded and private REITs, the prospectus is the primary source of information about strategy, fees, risks, and exit terms. The SEC recommends carefully reviewing the prospectus before making any investment decision.
• Assuming distributions represent earnings: Private and non-traded REITs may pay distributions using offering proceeds (investor capital) rather than income from operations. This can make yields appear higher than actual investment performance.

Important Metrics to Understand

When evaluating a public REIT, investors have access to standard financial metrics through SEC filings and analyst reports, including:

• Funds From Operations (FFO): A widely used REIT metric that adjusts GAAP net income by adding back real estate depreciation and amortization and removing gains or losses from property sales. FFO is considered a better reflection of a REIT's operating cash flow than standard net income.
• Net Asset Value (NAV): An estimate of the current market value of a REIT's assets minus its liabilities. For public REITs, NAV can be compared to the share price to assess whether the REIT may be trading at a premium or discount.
• Dividend yield: The annual dividend expressed as a percentage of the current share price.
• Occupancy rate: The percentage of a REIT's properties that are currently leased, which is a key indicator of income stability.

For private REITs, these metrics may not be publicly available or independently verified. Investors rely on sponsor-provided data, which may be updated less frequently than SEC filings.

Frequently Asked Questions

Can individual investors buy private REITs?

Private REITs are generally only available to accredited investors and institutional buyers such as pension funds. Accredited investors are typically defined as individuals with a net worth of at least $1 million excluding their primary residence, or income exceeding $200,000 for each of the past two years. Retail investors who do not meet accredited investor criteria typically cannot invest in private REITs.

Are private REITs still required to follow REIT tax rules?

Yes. Even though private REITs are exempt from SEC registration, they must still satisfy the Internal Revenue Code's REIT qualification requirements to receive favorable tax treatment. This includes distributing at least 90% of taxable income to shareholders and meeting income and asset tests under the tax code.

How can I find out the value of a private REIT investment?

Because private REIT shares do not trade on a public exchange, there is no readily available market price. Share valuations are typically based on periodic third-party appraisals of the underlying real estate properties. According to Nareit, there is no public or independent source of performance data available for tracking private REITs, so investors rely primarily on information provided by the sponsor.

What happens when I want to sell shares in a private REIT?

Selling private REIT shares is not straightforward. There is no exchange where you can list them for sale. Some private REITs offer limited redemption programs, but these vary by company, may be subject to restrictions, and can be suspended at any time. Investors generally must wait for a liquidity event — such as the REIT selling its properties, merging with another entity, or listing on a public exchange.

Are public REITs safer than private REITs?

"Safer" depends on what risks you are evaluating. Public REITs offer significantly greater transparency, daily liquidity, and regulatory oversight. However, their share prices are subject to daily stock market volatility. Private REITs carry different risks — primarily illiquidity, reduced transparency, and higher fees. Neither type is risk-free. Investors should carefully evaluate the specific risks of any REIT before investing and consider consulting a qualified financial professional.

What is EDGAR and how does it help REIT investors?

EDGAR (Electronic Data Gathering, Analysis, and Retrieval) is the SEC's free online database of company filings. All publicly traded REITs must file quarterly reports (Form 10-Q), annual reports (Form 10-K), and event-driven disclosures (Form 8-K) on EDGAR. These documents are accessible to any investor at sec.gov.

Conclusion

The distinction between public and private REITs is one of the most important fundamentals for REIT investors to understand. Publicly traded REITs offer accessibility, daily liquidity, price transparency, and strong regulatory oversight. They are generally the most straightforward entry point for individual investors who want exposure to real estate through the stock market.

Private REITs are reserved for accredited investors and institutional buyers and come with significant trade-offs: reduced liquidity, limited transparency, higher fees, and less regulatory oversight. While they may play a role in the portfolios of sophisticated investors, they require careful due diligence and a clear understanding of the risks involved.

For most investors just beginning to explore REIT investing, publicly traded REITs are a natural starting point. As you continue learning, explore how different types of REITs generate income, the role dividends play in total returns, and how factors like interest rates and valuation affect REIT performance.

Sources

• Nareit (National Association of Real Estate Investment Trusts) — "Guide to Private REIT Investing" — https://www.reit.com/what-reit/types-reits/guide-private-reits
• U.S. Securities and Exchange Commission (SEC), investor.gov — "Investor Bulletin: Non-Traded REITs" — https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-89 — August 31, 2015
• U.S. Securities and Exchange Commission (SEC) — EDGAR database — https://www.sec.gov/cgi-bin/browse-edgar
• FINRA — Investor Alert: "Public Non-Traded REITs — Perform a Careful Review Before Investing" — https://www.finra.org/investors/alerts/public-non-traded-reits-perform-careful-review-investing
• Nareit — "What Is a REIT?" — https://www.reit.com/what-reit