Another Way to Play The Real-Estate Boom, But Beware of 16% Fees
THE ENTIRE real-estate world is on fire with investors right now, but one of the hottest corners is private REITs.</br></br>These obscure real-estate companies invest in all types of commercial properties from office buildings to apartments to malls. Their shares don't trade on any exchange, and they shouldn't be confused with the much larger public real-estate investment trusts.</br></br>Private REITs, which are being heavily marketed, are sold almost exclusively through financial planners and advisers. Unlike public REITs, they have a fixed price of $10 a share. After a set period of time -- usually seven to 14 years -- private REITs are either taken public or liquidated and the proceeds are distributed to investors. In the meantime, investors usually receive a hefty annual dividend of approximately 7% to 8% -- higher than most public REITs pay currently.</br></br>About $7 billion was invested in private REITs in 2003, compared with the $4 billion invested in 2002. That, in turn, was double the $2 billion invested in 2001, according to the Investment Program Association, a trade group based in Washington, D.C.</br></br>One big downside with private REITs: Investors pay hefty initial fees of between 5% and 16%. Much of this goes toward paying commissions to planners who peddle the REITs. That means as little as 84 cents out of a dollar invested go for the actual real estate.