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Opportunities to Buy and Reasons to Sell

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The secondary market for non-traded REITs and limited partnerships is more than just an opportunity for investors to unload ownership in these investments. There are opportunities for buyers and financial advisors as well.

Investing in non-traded REITs and limited partnerships in the primary market presents many risks to investors. Sometimes there may be no operating history or assets to speak of as offerings are made as a blind pool. Front end sales loads can range from 10% to over 15% in some cases, which decreases the amount of capital put to work. Buying in the secondary market typically reduces or eliminates these concerns. Buyers have more information about cash flows, assets, operating history, updated net asset values, and holding periods. And sometimes investments are made at a discounted price.

Initial Direct Investment

For financial advisors seeking diversification into alternatives or hard assets, the secondary market could be a consideration. Why the secondary market and not the primary? Either would certainly work for accomplishing the objective of diversification, but sometimes investors are hesitant if they have not invested in a non-traded REIT or limited partnership before. Common hang-ups are the front end fees, the lack of operating history, investing in a blind pool, time to cash flow, or lack of cash flow. Remember, the secondary market reduces or eliminates many of these concerns. Before jumping in, make sure you have broker dealer approval and learn from the secondary market company how they work with financial advisors.

Inherited Assets

Often times, as advisors earn new clients, they find existing portfolios with non-traded REITs or limited partnerships that the new client wants out of. After consultation and a review of assets, it may be best to look to the secondary markets to sell. By shedding the portfolio of these investments, clients truly have a fresh start on a new relationship and the financial advisor is free from the potential baggage.

Client Reviews

Allocations change, risk tolerance changes, and clients change. What was a great investment idea four years ago may not be the right fit for a portfolio today. The secondary market can help reallocate assets to appropriate investments for today, which could include other direct investments.

Remember, it is important to check with your broker dealer and the secondary market company on rules or limitations as to your involvement. Also, make sure the secondary market company plays by the same rules as you and is affiliated with a FINRA registered broker dealer. Lastly, if you are unable to participate in the transaction, your client is still able to sell or buy through one of these companies without you.