It’s important to note that operationally, nontraded REITs have a lot in common with publicly traded REITs.
Both types of REITs use investors’ money to buy properties – such as office, industrial, retail, or hotels – and they lease the buildings to tenants. Rent paid by tenants serves as income for the REIT, and this income is paid out in the form of dividends to investors.
There also is the potential for capital appreciation. Picture your own house and the potential for selling it for more money than you paid for it. A nontraded REIT will receive capital appreciation if the REIT eventually sells the properties at a higher price than it paid for them. Investors in the REIT benefit from this capital appreciation and may receive these gains when the REIT ‘goes public’ by listing its shares on an exchange, sells its assets to another REIT, or liquidates.