Private Real Estate Investment Trust (Private REIT): A Deep Dive
When people think of real estate investing, they often imagine buying rental properties, flipping houses, or even investing in publicly traded Real Estate Investment Trusts (REITs). However, there’s another investment vehicle that operates behind the scenes, often used by wealthy individuals and institutions—the Private Real Estate Investment Trust (Private REIT).
A Private REIT is similar to a traditional publicly traded REIT, in that it pools investor money to invest in income-generating real estate. However, it is not publicly listed on stock exchanges, making it an exclusive investment with more restrictive access and potentially higher returns.
How Does a Private REIT Work?
Private REITs function by raising capital from accredited and institutional investors, then using that money to acquire, develop, and manage real estate assets such as:
✅ Multifamily Apartment Complexes
✅ Commercial Office Spaces
✅ Retail Centers
✅ Industrial Warehouses
✅ Hotels & Hospitality Properties
✅ Mortgage Notes & Real Estate Debt Investments
Unlike publicly traded REITs, where shares can be bought and sold on stock exchanges like the NYSE or Nasdaq, private REIT shares are not available to the general public. This means investors must meet certain financial criteria and usually commit to their investment for several years.
Key Features of a Private REIT
A private REIT differs significantly from its publicly traded counterpart in several ways. Here are the most notable features:
1️⃣ NOT Publicly Traded – Private REITs do not trade on stock exchanges, which means their value does not fluctuate daily based on market sentiment. Instead, their value is determined periodically based on underlying real estate performance.
2️⃣ Limited Liquidity – Because they aren’t publicly listed, selling shares in a private REIT is much harder than selling stock in a public REIT. Investors typically cannot withdraw their money for several years unless they meet specific conditions.
3️⃣ Higher Entry Requirements – Many private REITs require investors to be accredited, meaning they must meet minimum income or net worth thresholds (e.g., $1 million net worth or $200,000+ annual income for individuals). This restriction limits participation to high-net-worth investors and institutions.
4️⃣ Tax Advantages – Like all REITs, private REITs avoid corporate taxes if they distribute at least 90% of their income to investors. This pass-through taxation can be beneficial, as investors only pay personal income tax on dividends received.
5️⃣ Potentially Higher Returns – Since private REITs are not subject to daily stock market volatility, they can focus on long-term real estate appreciation and steady income streams. Their managers have more flexibility to make strategic, long-term investment decisions without the pressure of stock market performance.
Who Invests in Private REITs?
Because private REITs have higher investment requirements and lower liquidity, they are typically used by:
🏦 Institutional Investors – Pension funds, insurance companies, hedge funds, and university endowments use private REITs to diversify into real estate.
💰 High-Net-Worth Individuals (HNWIs) – Accredited investors looking for long-term passive income with less stock market correlation.
🏠 Family Offices – Wealth management firms that invest in alternative assets for ultra-high-net-worth families.
📈 Wealth Managers & Private Equity Funds – Investment professionals seeking stable, long-term returns in real estate without the daily price swings of public markets.
Pros & Cons of Private REITs
Like any investment, private REITs come with both advantages and disadvantages.
✅ Pros: Why Investors Like Private REITs
✔ Potentially Higher Returns – Since they aren’t affected by public market fluctuations, private REITs often deliver steadier and higher returns over time.
✔ Tax Efficiency – With pass-through taxation, investors avoid double taxation on corporate profits.
✔ Diversification – Real estate performs independently from stocks and bonds, adding diversification to an investment portfolio.
✔ Less Market Volatility – Since shares are not publicly traded, private REITs aren’t affected by daily stock market swings.
❌ Cons: What Investors Should Consider
❌ Illiquidity – Unlike public REITs, which can be sold anytime, private REITs require a long-term investment horizon, often 5-10 years.
❌ High Minimum Investments – Many private REITs require at least $50,000 – $100,000+ to get started, making them inaccessible to everyday investors.
❌ Limited Transparency – Public REITs must disclose their financials regularly, but private REITs have fewer reporting requirements, which can make it harder to assess risk.
❌ Accreditation Requirements – Many private REITs only accept accredited investors, limiting participation to high-income and high-net-worth individuals.
Public vs. Private REITs: What’s the Difference?
| Feature |
Public REITs |
Private REITs |
| Availability |
Open to anyone |
Limited to accredited investors |
| Trading |
Listed on stock exchanges |
Not publicly traded |
| Liquidity |
High (buy/sell anytime) |
Low (locked-in investment) |
| Volatility |
High (fluctuates with market) |
Low (long-term value-based) |
| Minimum Investment |
As low as $100 |
Typically $50,000+ |
| Transparency |
SEC-regulated & reports financials |
Less regulated, limited disclosure |
| Potential Returns |
Generally lower due to market swings |
Potentially higher due to strategic flexibility |
Should You Invest in a Private REIT?
Private REITs are not for everyone. While they offer attractive long-term returns and diversification, they require a high upfront investment, limited liquidity, and patience.
You should consider a Private REIT if:
✅ You’re an accredited investor who meets the income/net worth requirements.
✅ You don’t need immediate liquidity and can commit for 5-10 years.
✅ You want diversified real estate exposure without managing properties yourself.
✅ You’re looking for passive income with long-term capital appreciation.
However, if you need liquidity, prefer a low minimum investment, or want daily market pricing, then a public REIT or direct real estate investing might be a better fit.
How to Invest in a Private REIT
If you qualify as an accredited investor, you can invest in private REITs through:
- Private Equity Real Estate Firms – Companies specializing in private real estate investments.
- Real Estate Crowdfunding Platforms – Some platforms offer access to private REITs for qualified investors.
- Financial Advisors & Wealth Managers – Many high-net-worth investors access private REITs through their advisors.
- Institutional Investment Groups – Pension funds and endowments often invest in private REITs for stable, long-term returns.
Before investing, always:
🔹 Review the REIT’s financials, management team, and investment strategy.
🔹 Understand the fee structure, as private REITs often charge higher fees than public ones.
🔹 Assess your risk tolerance and investment timeline.
Final Thoughts
Private REITs offer a powerful way to invest in real estate without the daily stock market drama. If you have capital, patience, and the right risk tolerance, they can be a fantastic way to generate passive income and long-term wealth.
However, because of their illiquidity and high minimums, they’re best suited for seasoned investors and institutions looking for a reliable, long-term real estate strategy.
Want to explore if private REITs fit your investment goals? Let’s discuss!
