Publicly Traded vs Private REITs: Which Real Estate Investment Option Fits You?
So you know what REITs are and you know the three types. But there’s another layer to this. Not all REITs are created equal when it comes to how you actually buy and sell them.
In Chapter 3 of Real Estate Investment Trust Investing, Mike Hartley walks through the different ways real estate investments are structured and sold. This matters a lot more than you might think, because the structure affects everything from how easily you can sell your shares to how much information you get about what’s happening with your money.
Publicly Traded REITs: The Easy Route
Publicly traded REITs are listed on stock exchanges like the NYSE or NASDAQ. You buy and sell them the same way you’d buy and sell shares of any public company. Open your brokerage app, search for the ticker symbol, hit buy. Done.
What’s good about them:
They’re regulated by the SEC, which means they have to file regular financial reports and disclose a ton of information. You can look at their earnings, their property holdings, their debt levels, and their management compensation. Transparency is built in.
They’re liquid. If you need your money back, you sell your shares during market hours and the cash is available within days. No waiting months to find a buyer like you would with physical property.
They’re accessible. You don’t need to be wealthy or have special credentials. Anyone with a brokerage account can invest. Some shares cost less than the price of lunch.
What’s not so great:
Market volatility. Because publicly traded REITs are on the stock exchange, their prices move with the market. Even if the underlying properties are doing fine, a bad day on Wall Street can drag your REIT shares down. This can be stressful if you’re watching your portfolio daily.
Short-term price swings don’t reflect the actual value of the real estate. The market might panic about rising interest rates and dump REIT stocks, even though the buildings are still full of tenants paying rent. You have to be comfortable with that disconnect.
Private REITs: The Exclusive Option
Private REITs are not traded on any public exchange. You can’t just log into your brokerage app and buy them. They’re typically offered through private placements, and in many cases, you need to be an accredited investor to participate. That usually means meeting certain income or net worth thresholds.
What’s good about them:
Potentially higher returns. Because private REITs don’t have the same regulatory and listing costs as public ones, and because they’re investing in deals that aren’t available on the public market, they can sometimes generate better returns.
Less price volatility. Since there’s no daily market price bouncing around, you don’t have to watch your investment value swing with every market mood. The value is based on periodic appraisals, not minute-by-minute trading.
What’s not so great:
Illiquidity. This is the big one. When you put money into a private REIT, it can be locked up for years. There’s often no easy way to sell your shares if you need the cash. Some private REITs have redemption programs, but they’re limited and not guaranteed.
Less transparency. Private REITs don’t have the same SEC reporting requirements as public ones. You get less information about what’s happening with the properties and the finances. You’re placing more trust in the management team.
Higher fees. Management fees and performance fees can eat into your returns significantly. Some private REITs charge upfront fees that reduce the amount of your money actually being invested.
Hartley’s take is that private REITs can work for investors who have money they won’t need for a long time and who are comfortable with less transparency. But for most people, especially beginners, publicly traded REITs are the better starting point.
REOCs: The Growth Play
Here’s one that a lot of people haven’t heard of. REOCs, or Real Estate Operating Companies, are businesses that invest in real estate but don’t qualify as (or choose not to be) REITs.
The key difference? REOCs are not required to distribute 90% of their income as dividends. Instead, they can reinvest most of their profits back into the business to acquire more properties, fund development projects, or pay down debt.
Why that matters:
If you’re looking for current income (regular dividend payments), REOCs probably aren’t your thing. Their dividends tend to be much smaller than REIT dividends.
But if you’re focused on growth, REOCs can be interesting. By reinvesting profits, they can potentially grow their property portfolios faster and increase their overall value over time. You might not get big dividends today, but the share price could appreciate significantly.
The trade-off is clear. REITs pay you now through dividends. REOCs pay you later through growth. Different tools for different goals.
Real Estate vs Other Investments
Hartley also spends time in this chapter comparing REITs to other common investment types. Here’s the simplified version:
REITs vs Bonds. Bonds pay fixed interest, and they’re generally considered safer. But bond returns are usually lower, and they don’t offer the same growth potential. REITs pay higher dividends and have the potential for capital appreciation, but with more risk.
REITs vs Preferred Stocks. Preferred stocks also pay dividends and sit higher in the capital structure (meaning you get paid before common shareholders if things go bad). But they typically don’t have the same upside potential as REITs, and they don’t give you real estate exposure.
REITs vs Regular Stocks. The S&P 500 has delivered strong long-term returns, but stocks don’t inherently provide the kind of consistent dividend income REITs offer. And stocks don’t give you the diversification benefit of real estate as an asset class.
The Inflation Hedge
One point Hartley emphasizes that I think is really worth highlighting: REITs can serve as a hedge against inflation.
Here’s why. When inflation rises, the cost of everything goes up, including rent. If a REIT owns properties with leases that adjust for inflation (or short-term leases that can be repriced regularly), the rental income keeps pace with rising prices. That means your dividend income can grow along with inflation instead of losing purchasing power.
Compare that to a bond paying a fixed 3% interest. If inflation jumps to 5%, your real return is negative. You’re actually losing money in terms of what your dollars can buy. REITs don’t have that same vulnerability because their income is tied to real assets with real pricing power.
This doesn’t mean REITs are a perfect inflation hedge every single year. But over the long term, the connection between real estate values, rental rates, and inflation works in your favor.
So Which Option Should You Choose?
If I’m being honest, for most people reading this, publicly traded REITs are the answer. They’re easy to buy, easy to sell, well-regulated, and transparent. You can start small and scale up as you learn more.
Private REITs have their place, but they’re better suited for experienced investors with larger portfolios and longer time horizons. If you’re still learning about REITs (which, if you’re reading this series, you probably are), stick with publicly traded ones for now.
REOCs are worth knowing about, but they serve a different purpose. They’re more of a growth investment than an income investment.
And regardless of which route you take, understanding how REITs compare to bonds, stocks, and other investments helps you build a more complete portfolio. REITs aren’t meant to replace your other investments. They’re meant to complement them.
In the next post, we’ll get into the practical stuff: how to actually start investing in REITs, from researching specific ones to opening a brokerage account and buying your first shares.
This is Part 4 of a blog series covering “Real Estate Investment Trust Investing: The Secret to Passive Income from REITs” by Mike Hartley (2023).
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