The Triton


The secret success of non-traded REITs


I have been using non-traded REITs in client portfolios for about three years now. The reason simply is for diversification, which is a must for savvy investors.

But, just as there are winners and losers in the stock market, there are winners and losers in the real estate market. REITs are real estate investment trusts. The trick for success is due diligence.

To be the best captain, yachting professionals are expected to do their due diligence when charting new destinations or selecting a yard for repairs. If you don’t “plan the plan”, you risk the possibility of looking bad to your employer and possibly getting fired.

As an adviser, I have the same responsibility. If advisers don’t do their research and meet client expectations, they get fired. Over the years, I have spoken to a lot of people that have not been satisfied with their adviser’s way of handling options. Reputation gets around fast; bad reputations get around even faster.

In meetings in New York City in early April, I learned about several REITs and the market in general from a room of about 500 advisers from around the country. There was a lot of good questions flying around and answered by the CEOs of different REITs.

Most investors like to know who is getting their money. They like to meet them face to face, look them in the eye and hopefully walk away with a warm and fuzzy feeling about their integrity. While the general public investor evaluates me likewise, I like to do that with the CEOs of REITs. For me, my investment strategy is not only for my clients’ money but my personal investment money and that of my family.

My target is to under-promise and over-deliver. That is why I have always told clients when investing into REITs to expect their money to be tied up for 4-7 years. This is considered the average life of a non-traded REIT from start to exit. As some have experienced recently, the time can be shorter if you know when to get into particular REITs.

Since I work with many REIT companies, I only invest clients in after they have a proven track record of raising funds and buying properties. If a REIT cannot raise funds and purchase properties at the right speed, that can be the death of a REIT.

Some successful REIT models keep doing the same boring thing over and over but the successful results are starting to get attention. One REIT in particular has just now closed its No. 4 REIT to new investors. I have had clients in one from three years ago. It went public just over a year ago. Most clients sold and made a decent profit and did not want to be in the stock market as a traded REIT and so they purchased the next REIT. That one went full cycle and merged at the end of February. The clients that took that ride saw more than a 50 percent return in one year. The No. 5 is now open but expected to raise its $1.7 billion before the end of this year and close.

So how do you take advantage of REITs and the stock market? REITs typically pay out at 6-7 percent. With monthly dividend checks, those are dollar-cost averaged into an aggressive mutual fund. With dollar-cost averaging, you can possibly make a better return with a volatile, flat market. In other words, it’s not about timing the market, it is the time in the market.

The biggest mistake people make — especially when they try to fund their IRA on April 15 with that $5,000 check — is that the market could drop after that date. If they had budgeted $416 a month and bought into that mutual fund on a monthly basis, they could have done better even if the price closed the same as a year ago. The reason is because some months were most likely trading down for a while. In those months, you bought the shares at a discount.

In short, gather information, make a plan, diversify, and stick with it.

Information in this column is not intended to be specific advice for anyone. You should use the information to help you work with a professional regarding your specific financial goals.


Capt. Mark A. Cline is a chartered senior financial planner. Contact him at +1 954-764-2929 or through Comments on this column are welcome at

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