Non Public-traded REIT nightmare continues

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Pursuitofquality
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Non Public-traded REIT nightmare continues

Post by Pursuitofquality » Wed Jan 03, 2018 5:50 pm

I just wanted to post this information so that people can learn from my mistakes. My ex-financial planner talked us into moving our Roth IRA accounts into several (4 total) non public-traded REITs 5 years ago. I discovered Bogleheads and White Coat Investor in 2014...fired my Financial Planner and tried to move all my accounts to Vanguard and Fidelity. Unfortunately these private REITs are not liquid and I was forced to keep them in the brokerage they were originally set up in. In December 2017 I discovered that one of the 4 REITs had gone public so I put in the order to sell. The trade cost was $360 :shock: and after four years that $20K investment cost me $5000 plus non-realized gains from not being in VTSAX (12-18K). Unfortunately I have three more to liquidate at some point in the future :oops:

Silver lining: My wife and I have learned a great amount about personal finance and investing over the last four years and over our lifetimes that will more than make up for the dollars lost with these private REITs.

Please don't allow anyone to talk you into buying these products and never buy a product you don't fully understand.

noraz123
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Re: Non Public-traded REIT nightmare continues

Post by noraz123 » Wed Jan 03, 2018 7:21 pm

+1. These are awful investments that are sold, not bought. My wife was sold into one of these REITs. Fortunately, it went public, so was able to liquidate (and fire her financial advisor). No idea what the return was, but my guess was after expenses, it was below the market return.

Private REITs and whole life/universal life insurance should be avoided.

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samsoes
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Re: Non Public-traded REIT nightmare continues

Post by samsoes » Wed Jan 03, 2018 8:01 pm

Hopefully the new Fiduciary Standard would reduce the occurrences of folks getting deceived in to investing :?: in these pieces of garbage.
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CJC000
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Re: Non Public-traded REIT nightmare continues

Post by CJC000 » Wed Jan 03, 2018 8:26 pm

+1000

We were sold three of these horrible products by our now fired “trusted advisor”. Come to find out he made a 10% immediate commission on the sale and may have had a trail on them also. One went public (NYRT) which we sold after a few months and actually made a small profit, it has tanked since. Another one stopped paying dividends and I was able to sell it with an on-line auction house for a 30% loss. The third one had a share-repurchasing program and I was able to sell some shares till they ran out of money. Hopefully they will buy back more in 2018, meanwhile it still pays a monthly dividend for now.
I would advise contacting the companies and see if you can enroll in their share-repurchasing program if they offer one and unload asap. Do not reinvest the dividends in more shares, take the dividend in cash so you don’t end up with more useless shares. Also, look at your statements. If you still see your advisors name on it he may still be getting a trail. Call the company and fill out their form to make it a “house account.” Ours was Triad Advisors and was easy to do.
Good luck liquidating these, hard lesson learned by the both of us...

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abuss368
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Re: Non Public-traded REIT nightmare continues

Post by abuss368 » Wed Jan 03, 2018 8:45 pm

An unfortunate experience and thank you for sharing.

We have invested in REITs for a long time. Previously with individual REITs and now simply the Vanguard U.S. REIT Index Fund and the Vanguard International REIT/RE Index Fund.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

Dave55
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Re: Non Public-traded REIT nightmare continues

Post by Dave55 » Wed Jan 03, 2018 9:38 pm

Private REIT's are awful for investors and good for the sponsors and brokers who sell them. I invested in Private REIT's and other private equity commercial & multifamily RE deals for decades but ceased investing that way about 8 years ago (I was also in the stock & bond market too for decades). I made decent money on some of these private reits and RE Deals, small returns on others, some were breakeven and the worse ones had small losses of capital. A few went belly up. Stick with total market investing, or if you must use a REIT INDEX Fund.

Dave

Valuethinker
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Re: Non Public-traded REIT nightmare continues

Post by Valuethinker » Thu Jan 04, 2018 5:09 am

samsoes wrote:
Wed Jan 03, 2018 8:01 pm
Hopefully the new Fiduciary Standard would reduce the occurrences of folks getting deceived in to investing :?: in these pieces of garbage.
I believe that the implementation of that is under question? One of the items on the Agenda for the new (2017) US Administration?

I don't want to get us into a discussion of whether that is wise or not, but my understanding is that it is not being implemented/ it is intended that it be significantly modified?

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alpine_boglehead
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Re: Non Public-traded REIT nightmare continues

Post by alpine_boglehead » Thu Jan 04, 2018 5:52 am

Same in Europe, there's lots of private non-liquid investment vehicles (REITs, ships, whatever) which are usually very bad investments. Last month one from around here went under which was somehow set up to regularly distribute losses to investors so they could save on taxes.

Valuethinker
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Re: Non Public-traded REIT nightmare continues

Post by Valuethinker » Thu Jan 04, 2018 7:02 am

alpine_boglehead wrote:
Thu Jan 04, 2018 5:52 am
Same in Europe, there's lots of private non-liquid investment vehicles (REITs, ships, whatever) which are usually very bad investments. Last month one from around here went under which was somehow set up to regularly distribute losses to investors so they could save on taxes.
That said, open ended real estate investment funds, run by insurance companies, are quite common here (UK, and I believe Germany generally). Whereas REITs are much less so.

If you take total management charges (which are opaque) I believe these are competitive with a quoted REIT fund (but the latter is likely to be a better bargain on fees-- although again, it depends on what the fees paid by the underlying REITs for asset management are).

The problem is liquidity of underlying assets v. the ability of investors to invest/ redeem shares:

- the funds usually hold c. 20% in liquid securities such as listed RE companies, 80% in actual buildings they own
- they often also hold some cash (say 10%) yet to be invested
- they have the right to close to redemptions or to apply a "Market Value Adjustment". For example post the Brexit vote, several large UK real estate funds did precisely that-- I think the MVA was as large as 50%. In practice, the market for commercial RE didn't crash, so they reopened

People usually invest in them for relative stability of NAV (buy & sell price) and for the income they provide. They are analogous to the TIAA Real Estate Annuity which is available to TIAA members, in the USA.

I vaguely remember there was a scandal with Deutsche Bank? Their RE fund became illiquid and they had to bail out investors. I think this was before 2008.

carolinaman
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Re: Non Public-traded REIT nightmare continues

Post by carolinaman » Thu Jan 04, 2018 7:25 am

Pursuitofquality wrote:
Wed Jan 03, 2018 5:50 pm
I just wanted to post this information so that people can learn from my mistakes. My ex-financial planner talked us into moving our Roth IRA accounts into several (4 total) non public-traded REITs 5 years ago. I discovered Bogleheads and White Coat Investor in 2014...fired my Financial Planner and tried to move all my accounts to Vanguard and Fidelity. Unfortunately these private REITs are not liquid and I was forced to keep them in the brokerage they were originally set up in. In December 2017 I discovered that one of the 4 REITs had gone public so I put in the order to sell. The trade cost was $360 :shock: and after four years that $20K investment cost me $5000 plus non-realized gains from not being in VTSAX (12-18K). Unfortunately I have three more to liquidate at some point in the future :oops:

Silver lining: My wife and I have learned a great amount about personal finance and investing over the last four years and over our lifetimes that will more than make up for the dollars lost with these private REITs.

Please don't allow anyone to talk you into buying these products and never buy a product you don't fully understand.
I was sold some non public REITs many years ago when I knew nothing about markets and investments. I finally found a private buyer who bought these and sold them to him at a loss. I was paying stiff account fees just to hold them and just wanted to get rid of them. Fortunately, the loss was small but the lesson was very important for my investing future. Your advice is spot on.

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Top99%
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Re: Non Public-traded REIT nightmare continues

Post by Top99% » Thu Jan 04, 2018 7:57 am

Thanks for sharing and helping others benefit from your experience. It sounds like your "trusted advisor" followed the well worn path of selling you "sticky" assets in an attempt to achieve what is known in the Megacorp world as "vendor lock-in". One thing I have learned is the value to me of a product is generally inversely proportional to how hard the seller tries to sell it to me.
Adapt or perish

Fclevz
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Re: Non Public-traded REIT nightmare continues

Post by Fclevz » Thu Jan 04, 2018 10:58 am

I always wondered if my crazy uncle got burned by something non-traded, because his constant saying about investing was: "Don't invest in anything that doesn't have a price listed in the Wall Street Journal."

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Doom&Gloom
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Re: Non Public-traded REIT nightmare continues

Post by Doom&Gloom » Thu Jan 04, 2018 11:07 am

An advisor talked me into buying some shares of a real estate limited partnership in the early 80's. He assured me that it would be liquidated within 5-7 years. The last chunk of it was liquidated ca. 2010. What a royal PITA that thing was. K-1 forms to deal with at tax time every year. There was no market for the shares, but every few years an offer came around from someone trying to acquire the shares at a sharply reduced price. Money was returned in dribbles over the years, never a significant sum at one time. Similar to the OP, the loss (relatively small in my case) in the investment itself was dwarfed by the opportunity cost of the money being tied up for years. Luckily I left the advisor shortly after that.

Valuethinker
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Re: Non Public-traded REIT nightmare continues

Post by Valuethinker » Thu Jan 04, 2018 11:38 am

Doom&Gloom wrote:
Thu Jan 04, 2018 11:07 am
An advisor talked me into buying some shares of a real estate limited partnership in the early 80's. He assured me that it would be liquidated within 5-7 years. The last chunk of it was liquidated ca. 2010. What a royal PITA that thing was. K-1 forms to deal with at tax time every year. There was no market for the shares, but every few years an offer came around from someone trying to acquire the shares at a sharply reduced price. Money was returned in dribbles over the years, never a significant sum at one time. Similar to the OP, the loss (relatively small in my case) in the investment itself was dwarfed by the opportunity cost of the money being tied up for years. Luckily I left the advisor shortly after that.
Unfortunately, even if it means selling at a significant loss, the best advice when offered liquidity is usually "cut and run".

Because of the opportunity cost point you highlight above. The money can be redeployed into better returning assets. And it's good behavioural finance-- taking a loss is a lot harder than realizing a gain, so we tend to hold on to our losers and sell our winners too early, whereas successful investors tend to do the opposite.

Also the additional time taken to file taxes-- that has a value, too.

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Doom&Gloom
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Re: Non Public-traded REIT nightmare continues

Post by Doom&Gloom » Thu Jan 04, 2018 11:57 am

Valuethinker wrote:
Thu Jan 04, 2018 11:38 am
Doom&Gloom wrote:
Thu Jan 04, 2018 11:07 am
An advisor talked me into buying some shares of a real estate limited partnership in the early 80's. He assured me that it would be liquidated within 5-7 years. The last chunk of it was liquidated ca. 2010. What a royal PITA that thing was. K-1 forms to deal with at tax time every year. There was no market for the shares, but every few years an offer came around from someone trying to acquire the shares at a sharply reduced price. Money was returned in dribbles over the years, never a significant sum at one time. Similar to the OP, the loss (relatively small in my case) in the investment itself was dwarfed by the opportunity cost of the money being tied up for years. Luckily I left the advisor shortly after that.
Unfortunately, even if it means selling at a significant loss, the best advice when offered liquidity is usually "cut and run".

Because of the opportunity cost point you highlight above. The money can be redeployed into better returning assets. And it's good behavioural finance-- taking a loss is a lot harder than realizing a gain, so we tend to hold on to our losers and sell our winners too early, whereas successful investors tend to do the opposite.

Also the additional time taken to file taxes-- that has a value, too.
Agree. Belatedly. Live and learn.

Tachyon
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Re: Non Public-traded REIT nightmare continues

Post by Tachyon » Tue Jan 09, 2018 8:31 pm

There's nothing wrong with non publicly traded REITs. There is something very wrong with not doing the due diligence yourself and just listening point black to an "advisor" who makes a fat commission if you invest.

Evaluating non publicly traded REITs is just like evaluating of private companies. There're good investments and bad investments. However, wading into this area should be met with caution. If you have no experience evaluating private companies, then it's best to stay away.

OkieIndexer
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Re: Non Public-traded REIT nightmare continues

Post by OkieIndexer » Tue Jan 09, 2018 8:53 pm

Sounds like they're almost as bad as timeshares.
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital

pwill112
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Re: Non Public-traded REIT nightmare continues

Post by pwill112 » Tue Mar 06, 2018 10:58 pm

I sold 2 reits (Cole and KBS) at auction through central trade and transfer. I worked with Chad Gardner who good to work with.
I hated those reits

wolf359
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Re: Non Public-traded REIT nightmare continues

Post by wolf359 » Wed Mar 07, 2018 11:56 am

Valuethinker wrote:
Thu Jan 04, 2018 5:09 am
samsoes wrote:
Wed Jan 03, 2018 8:01 pm
Hopefully the new Fiduciary Standard would reduce the occurrences of folks getting deceived in to investing :?: in these pieces of garbage.
I believe that the implementation of that is under question? One of the items on the Agenda for the new (2017) US Administration?

I don't want to get us into a discussion of whether that is wise or not, but my understanding is that it is not being implemented/ it is intended that it be significantly modified?
The current status of the fiduciary rule is that implementation has been delayed further to July 1, 2019. It had previously been delayed until January 1, 2018. (Announcement pasted below.) Source: https://www.dol.gov/newsroom/releases/e ... 20171127-0


U.S. Department of Labor Extends Transition Period For Fiduciary Rule Exemptions

WASHINGTON, DC – The U.S. Department of Labor has announced an 18-month extension from Jan. 1, 2018, to July 1, 2019, of the special Transition Period for the Fiduciary Rule’s Best Interest Contract Exemption and the Principal Transactions Exemption, and of the applicability of certain amendments to Prohibited Transaction Exemption 84-24 (PTEs). This follows public comment on a proposed extension that was published in August.

The extension gives the Department the time necessary to consider public comments submitted pursuant to the Department’s July Request for Information, and the criteria set forth in the Presidential Memorandum of Feb. 3, 2017, including whether possible changes and alternatives to exemptions would be appropriate in light of the current comment record and potential input from, and action by the Securities and Exchange Commission, state insurance commissioners and other regulators. The President directed the Department to prepare an updated analysis of the likely impact of the Fiduciary Rule on access to retirement information and financial advice.

During the extended Transition Period, fiduciary advisers have an obligation to give advice that adheres to “impartial conduct standards.” These fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services, and refrain from making misleading statements.

Further, between now and July 1, 2019, when the exemptions’ remaining conditions are scheduled to become applicable, the Department intends to complete its review under the Presidential Memorandum and decide whether to propose further changes.

The Department has also announced an extension of the temporary enforcement policy contained in Field Assistance Bulletin 2017-02 to cover the 18-month extension period. Thus, from June 9, 2017, to July 1, 2019, the Department will not pursue claims against fiduciaries working diligently and in good faith to comply with the Fiduciary Rule and PTEs, or treat those fiduciaries as being in violation of the Fiduciary Rule and PTEs.

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