10 Cons of Non-Traded REITS – Recover Your Losses

Regulators — the SEC, FINRA, and many state securities authorities — have repeatedly cautioned that non‑traded REITs and non‑traded BDCs are complex, often costly, alternative investments. Over the years their messages have been consistent: these products can be difficult for retail investors to understand, they can carry hidden or structural conflicts, and their long‑term economics often differ dramatically from how they’re sold.

If you’re reading this because you’re worried about a non‑traded investment you own, don’t sit on that concern. A short, no‑cost consultation can quickly clarify whether you may have a recoverable loss and what your next steps are. Call for a free review at 1 888-885-7162, or complete our contact form..

Too frequently, investors rely on advisors who may not have received adequate training about these investments, or who have strong financial incentives to recommend them. The result: sales pitches that emphasize potential upside while downplaying — or failing to fully explain — the real risks.

The paragraphs below expand on ten material issues that are commonly under‑disclosed. Read slowly. Ask questions. Keep notes. These are the items that often determine whether a sale was appropriate, or whether you may have been misled.

Regulators — the SEC, FINRA, and many state securities authorities — have repeatedly cautioned that non‑traded REITs and non‑traded BDCs are complex, often costly, alternative investments. Over the years their messages have been consistent: these products can be difficult for retail investors to understand, they can carry hidden or structural conflicts, and their long‑term economics often differ dramatically from how they’re sold.

If you’re reading this because you’re worried about a non‑traded investment you own, don’t sit on that concern. A short, no‑cost consultation can quickly clarify whether you may have a recoverable loss and what your next steps are. Call for a free review at 1 888-885-7162.

Too frequently, investors rely on advisors who may not have received adequate training about these investments, or who have strong financial incentives to recommend them. The result: sales pitches that emphasize potential upside while downplaying — or failing to fully explain — the real risks. The paragraphs below expand on ten material issues that are commonly under‑disclosed. Read slowly. Ask questions. Keep notes. These are the items that often determine whether a sale was appropriate, or whether you may have been misled.

Short preview: a few things you should remember

These investments are not mutual funds. They are not daily‑priced, liquid securities. They are structured, managed vehicles that rely on sponsor disclosures, infrequent reporting, and internal redemption policies. In plain terms: what you see on a monthly statement may not be the whole truth.

1. High risk — these are speculative investments

Many non‑traded REITs and BDCs are speculative by design. They invest in real estate or private credit strategies that are sensitive to market cycles. Some borrowers default. Some properties lose value. Some sponsors change strategy. The result can be a loss of principal — sometimes a large one.

• Ask: “Could I lose all of my investment?” If the honest answer is “yes,” that’s a clear indicator of the product’s speculative nature.
• Example: A product marketed for steady income may actually rely on risky loans or thinly capitalized projects. Short‑term distribution payments can mask long‑term capital erosion.

2. High commissions and hidden costs

These investments often conceal substantial compensation built into their structure. That compensation may not be obvious on a confirmation or in plain language.

• Typical range: Total sponsor/broker compensation frequently falls in the 8–12% range, and sometimes around 10%.
• The consequence: your advisor may earn multiples of what they would for recommending a mutual fund or ETF. That creates a strong potential incentive to recommend these products even when other options may better suit your needs.
• Ask: “Exactly how much did the firm and my advisor earn on this sale?” Demand a dollar amount and a percentage, and insist on seeing the selling agreement if necessary.

3. Illiquidity risk — you may be locked in for years

Non‑traded means non‑liquid. Many investors were told their money would be tied up for a short period. Reality often differs.

• Studies and experiences show hold periods commonly average far longer than the “2–3 years” sales pitch — sometimes seven years or more.
• Redemption programs, when available, are often limited, suspendable, or offered at a discount; they may require expensive paperwork or eligibility hurdles.
• Ask: “If I need my money in three years, how likely is that to happen — and at what price?”

If you’re already facing a cash‑flow issue or unexpected need for liquidity, reach out for a free consultation to discuss whether the redemption program is meaningful and whether alternative recovery paths exist.

4. Lack of transparency and infrequent reporting

Unlike publicly traded funds that publish daily NAVs and extensive quarterly reports, non‑traded products typically disclose less and do so far less often.

• Information can be stale, selective, or difficult to verify. Investors may receive glossy reports that omit key tensions or deteriorating metrics.
• Ask for: quarterly financials, investor letters, a schedule of major holdings, and any independent valuation reports.

5. Investment manager and strategy risk

Who is managing your money? What is their track record? How concentrated are the holdings? These questions were often not fully answered.

• Many non‑traded vehicles allow the sponsor to change strategy without investor consent. That flexibility can be dangerous if the manager’s incentives are misaligned or if they shift into riskier assets.
• Ask: “Who are the people running the strategy? What is their exact track record on comparable strategies? How will they be compensated going forward?”

6. Leverage, distribution funding, and principal erosion

Distributions can be attractive: 6%, 7%, even 8% sounds appealing. But the source of those payments matters.

• Some distributions come from debt financing (leverage) or from returning investor principal rather than from underlying earnings. Leverage magnifies downside. Returning principal is not sustainable.
• Ask: “Are distributions funded from cash flow, loans, or a return of capital? What happens if market conditions change?”

If the distribution history looks steady but the fund is highly leveraged, that’s a red flag. In such cases, a complimentary review can help identify whether distributions were ordinary income or return of capital — a distinction that matters for both tax and recovery purposes.

7. Concentration risk and portfolio sizing

Non‑traded REITs and BDCs frequently concentrate exposure in a single asset class, sector, or geography.

• If a single product makes up a large portion of your portfolio, your overall risk profile changes dramatically. That should trigger a thorough suitability review.
• Regulators and many broker‑dealers limit the percentage of a client’s portfolio that may be allocated to these products. Were those limits followed in your case?

8. Misleading “safe, income” sales pitches and historical underperformance

Too often the sales pitch emphasizes “income” and “stability” while minimizing structural risks. Historical performance, however, tells a different story.

• Studies and examples frequently show these products underperform their liquid equivalents. In some cases the difference is substantial — historically measured in large percentage gaps.
• Ask: “What are the long‑term performance statistics relative to comparable liquid options? How likely is underperformance based on historical data?”

If you were told a product was “safe” or “conservative,” a free consultation can help assess whether that representation matches the actual structure and track record.

9. Conflicts of interest and affiliated arrangements

Sponsors often use affiliates to provide asset management, property management, or other services. Those affiliated arrangements can produce self‑dealing.

• Were you told whether the advisor or the sponsor received direct or indirect payments from affiliates? Were third‑party fees negotiated at arm’s length?
• Ask: “Who benefits if this product performs poorly? Who benefits if it performs well? Are payments to affiliates disclosed and reasonable compared to market rates?”

If you suspect undisclosed affiliated fees or self‑dealing, bring the offering documents and your account statements to a complimentary review to determine whether further investigation is warranted.

10. Monitoring, NAV accuracy, and secondary market discounts

What you see on a monthly account statement — a reported NAV — may not reflect actual market prices. Secondary market trades can occur at steep discounts.

• Many investors are surprised to learn that secondary market buyers often pay 30–60% less than the sponsor‑reported NAV. That gap is meaningful and material.
• A fiduciary advisor should disclose secondary market activity and explain how NAVs are derived. Did your advisor do that?

If your statement shows NAV that seems inconsistent with your understanding or with secondary market evidence, consider calling for a free case assessment. We can help analyze recent trades, NAV methodology, and the likelihood of recoverable claims.

What to do now: practical next steps

If you believe you were sold a non‑traded REIT or BDC without full, fair, and balanced disclosure, consider the following steps. They are practical, document‑oriented, and aimed at preserving your rights.

1. Preserve documents immediately.
   • Save account statements, offering documents (private placement memorandum or prospectus), emails, written pitch materials, and any notes from meetings.
2. Request written disclosures and compensation details from your broker‑dealer.
   • Send a demand for: a copy of the selling agreement, amounts paid to the firm and advisor, and any due‑diligence materials the firm reviewed.
3. Take screenshots and record dates of conversations.
   • If an advisor made verbal promises, record the date, context, and any witnesses.
4. Contact your state securities regulator or FINRA for guidance.
   • State regulators may have consumer complaint processes. FINRA arbitration is an option for customer disputes with broker‑dealers.
5. Consult an experienced securities attorney.
   • A lawyer can evaluate suitability, potential misrepresentations, and conflicts of interest, and can advise on deadlines and remedies.

Short delay may cost you legal rights. Statutes of limitation and contractual limits (including arbitration clauses) often kick in sooner than you realize. So document and consult sooner rather than later.

If you’re uncertain what to collect first, or you want a quick risk assessment, call now for a free consultation. An expert review can tell you whether you have a plausible recovery theory and what immediate steps preserve your claims.

Options for pursuing recovery

There is no single correct path for every investor. Which avenue makes sense depends on the facts: the documents, the advisor’s disclosures, the size of the loss, the investor’s age and needs, and any contractual arbitration clauses. Common options include:

• FINRA customer arbitration: Private, generally quicker than court litigation, mostly paper‑based, and often handled on contingency by plaintiff firms.
• Private litigation (state or federal court): May be appropriate in some cases, particularly where large institutional defendants or complex claims exist. Timeframes are longer and procedures more formal.
• Class actions or derivative suits: These are only sometimes available and are fact‑specific; class certification has its own hurdles and timelines.
• Administrative or regulatory complaints: Filing complaints with the SEC or state securities regulators can catalyze investigations or enforcement actions but will not always result in individual monetary recovery.

Common remedies sought include rescission (undoing the purchase), damages for losses, disgorgement of improper fees, and reimbursement of advisor commissions. An attorney can evaluate the strength of claims such as negligence, breach of fiduciary duty, omission/misrepresentation, or unsuitability.

If you’re weighing options and don’t know which path makes the most sense, a free, no‑obligation consultation can help prioritize choices and estimate timelines and costs.

Helpful practical tips before you speak with anyone

• Be organized. Create a single digital folder for all documents and correspondence.
• Time‑stamp everything. If you send a demand letter, do so by certified mail.
• Don’t sign away your rights inadvertently. Be cautious about settlement offers or waivers without legal review.
• Ask for a written summary of any oral assurances you received.

If you want, we can provide a short checklist during a free consultation so you’ll know exactly what to pull from your records before meeting with counsel.

About Haselkorn & Thibaut, P.A.

Haselkorn & Thibaut, P.A. is a nationwide law firm that focuses on investment fraud and securities arbitration. The firm’s team includes former financial advisors, certified financial planners, and attorneys with experience defending broker‑dealers and banks. Offices are in Palm Beach, FL; New York (Park Avenue); Phoenix, AZ; Houston, TX; and Cary, NC. The founding partners together bring more than 50 years of experience, and many customer matters are handled on a contingency basis (no recovery, no fee).

For a free consultation to review your loss recovery options and next steps, call 1 888-885-7162 or fill out our consultation form. If you’d like, we can schedule a short phone call to review documents and give you an initial assessment at no charge.