Quick Answer
REITs fall into three categories by listing status. Listed REITs trade on an exchange and are highly liquid. Public non-traded REITs are SEC-registered but not exchange-traded, carrying high fees and low liquidity. Private REITs are sold through Regulation D with minimal disclosure. Being SEC-registered does not mean a REIT is liquid.
Understanding REIT types by investment strategy matters, but the exam also tests another classification: listing status. Whether a REIT trades on an exchange directly affects liquidity, fees, and investor protections.
Three Categories by Listing Status
| Category | SEC Registered? | Exchange Traded? | Liquidity | Disclosure |
|---|---|---|---|---|
| Listed (publicly traded) | Yes | Yes (NYSE, Nasdaq) | High | Full SEC reporting |
| Public non-traded | Yes | No | Low (illiquid) | Full SEC reporting |
| Private (non-registered) | No | No | Very low | Limited (private placement) |
Exam Tip: Gotchas
"SEC registered" and "exchange traded" are NOT the same. Public non-traded REITs are registered but cannot be sold on an exchange; they are highly illiquid despite sounding "public."
Listed (Publicly Traded) REITs
- SEC registered and trade on major exchanges (NYSE, Nasdaq)
- Shares can be bought and sold daily like any stock
- Price determined by market supply and demand
- Subject to full SEC reporting requirements (annual 10-K, quarterly 10-Q)
- Most liquid type of REIT
Exam Tip: Gotchas
Listed REITs trade like stocks, which means their price is set by supply and demand, not by net asset value. Expect a distractor that prices a listed REIT at NAV like a mutual fund.
Public Non-Traded REITs
This is the category the exam focuses on most:
- SEC registered but do NOT trade on an exchange
- Despite being "public," they are highly illiquid
- Often have high upfront fees; commissions and offering costs can exceed 10-15% of the investment
- A 15% front-end fee on a $10,000 investment means only $8,500 goes to work for the investor
- Net asset value (NAV) is not updated daily; the stated value may be stale or inaccurate
- Redemption programs are limited and may be suspended by the REIT at any time
- Investors may be unable to sell for an extended period until a liquidity event (a listing, sale, or wind-down)
- Distributions may be partly funded by borrowed money or return of investor principal (not just operating income)
Exam Tip: Gotchas
- Non-traded REITs are SEC-registered (public) but NOT exchange-traded. Do NOT confuse "public" with "liquid." FINRA has issued investor alerts specifically about non-traded REITs because being SEC-registered does not mean shares can be easily sold.
- Non-traded REIT fees can exceed 10-15% upfront.
- Non-traded REIT distributions may come from borrowed funds, not operating income.
Private (Non-Registered) REITs
- Not registered with the SEC
- Sold through private placement (Regulation D exemption)
- Very limited disclosure; investors receive far less information than with public REITs
- The least liquid and least transparent category
- Available only to investors who meet private placement requirements
Exam Tip: Gotchas
Private REITs are sold under Regulation D and are not SEC-registered. Disclosure is minimal, and these are restricted to investors who meet private placement eligibility.
Now let's examine how REIT income is taxed and why it differs from regular stock dividends.
What Should You Check on Exam Day?
- Can you explain the difference between being SEC registered and being exchange traded for a REIT?
- Do you know why a listed REIT's price is set by supply and demand, not net asset value?
- Can you explain why public non-traded REITs are illiquid despite being SEC registered?
- Do you know how high upfront fees on a non-traded REIT can reduce an investor's actual capital at work?
- Can you explain why private REITs are sold under Regulation D instead of SEC registration?