Can You Cash Out of a REIT?

Yes, you can cash out of a Real Estate Investment Trust (REIT), primarily by selling your shares. However, the ease and speed of doing so, along with the price you receive, depend significantly on the type of REIT you own.

Understanding REIT Liquidity

The ability to "cash out" of a REIT is directly tied to its liquidity, which varies greatly among different REIT structures.

Publicly Traded REITs: High Liquidity

These are the most common type of REITs and are listed on major stock exchanges, similar to regular company stocks.

• Straightforward Process: Cashing out of a publicly traded REIT is generally a straightforward process. You simply place a sell order through your brokerage account, much like selling any other stock.
• High Liquidity: For publicly traded REITs, liquidity is typically not an issue. This allows investors to sell their shares quickly at market value.
• Market Price Fluctuations: While you can sell quickly, the price you receive is determined by current market conditions. The value of REIT shares can fluctuate with broader market trends, real estate market changes, interest rates, and the performance of the specific REIT.
• Accessibility: You can usually sell these shares during regular market hours, and the proceeds are available within a few business days (T+2 settlement).

Non-Traded REITs: Limited Liquidity

Non-traded REITs are not listed on national stock exchanges. They are typically sold by brokerage firms or financial advisors and often have specific structures designed for long-term investors.

• Restricted Redemption Programs: Cashing out of a non-traded REIT is much more challenging than with a publicly traded one. Many non-traded REITs offer limited redemption programs, which may only allow investors to sell a small portion of their shares at specific times, often with fees or penalties.
• No Active Market: Without an active public trading market, finding a buyer for your shares can be difficult.
• Potential Discounts: If you can sell, it might be through a secondary market, often at a significant discount to the original purchase price or estimated net asset value (NAV).

Private REITs: Very Low Liquidity

Private REITs are direct investments not offered to the general public. They are typically held by institutional investors or high-net-worth individuals and are often structured for specific, long-term real estate projects.

• Illiquid Investments: Private REITs are the most illiquid type of REIT. There is no public market for these shares, and redemption options are extremely rare or non-existent.
• Long Holding Periods: Investors in private REITs usually commit to very long holding periods, often until the underlying real estate assets are sold or the REIT itself liquidates.
• Negotiated Exits: Cashing out usually involves finding another private buyer, which can be a complex and time-consuming process, or waiting for a specific liquidity event outlined in the REIT's offering documents.

Factors Affecting Your Cash-Out Value

When cashing out of a REIT, several factors can influence the amount you receive:

• Market Conditions: For publicly traded REITs, overall stock market performance, interest rate movements, and investor sentiment toward real estate can impact share prices.
• Underlying Real Estate Performance: The health and performance of the properties owned by the REIT directly affect its value.
• REIT Type: As discussed, the inherent liquidity of publicly traded versus non-traded or private REITs is the most significant factor.
• Redemption Policies: For non-traded REITs, the specific rules, limits, and fees of their redemption programs will dictate how and when you can sell.
• Investment Horizon: Long-term investors in any REIT typically have more flexibility to ride out short-term market fluctuations compared to those needing immediate access to funds.

How to Initiate a Cash-Out

The method for cashing out depends on the type of REIT you hold:

• For Publicly Traded REITs:
  1. Access Your Brokerage Account: Log in to your investment brokerage account (e.g., Fidelity, Schwab, E*TRADE).
  2. Locate REIT Holdings: Find the specific REIT shares you wish to sell.
  3. Place a Sell Order: Choose "Sell" and specify the number of shares and the order type (e.g., market order for immediate sale at current price, or limit order to sell at a specific minimum price).
  4. Confirm Transaction: Review and confirm your sell order.
  5. Receive Proceeds: The funds will typically settle in your account within two business days.
  • Related resource: Learn more about the selling process for publicly traded REITs here.
• For Non-Traded or Private REITs:
  1. Contact the Issuer/Sponsor: Reach out to the company or entity that issued the REIT. They will provide information on any available redemption programs or secondary market options.
  2. Review Offering Documents: Refer to the original prospectus or private placement memorandum for details on liquidity provisions, lock-up periods, and potential exit strategies.
  3. Consult Your Financial Advisor: If you purchased the non-traded or private REIT through an advisor, they can guide you through the specific process for that investment.

In summary, while you can cash out of a REIT, the experience will vary significantly depending on whether it's a publicly traded, non-traded, or private investment.