Series 7 practice questionhardAlternative Investments — REITs
A client is considering a non-traded REIT. Which of the following risks is MOST specific to non-traded REITs compared to publicly traded REITs?
- AInterest rate risk
- BCredit risk from tenant defaults
- CInflation risk
- DIlliquidity and difficulty determining fair market value✓ Correct answer
Explanation
Why D — Illiquidity and difficulty determining fair market value
Non-traded REITs do not trade on public exchanges, making them highly illiquid — investors may be unable to sell their shares easily or at all before the REIT liquidates or lists. Additionally, because there is no public market price, it is difficult to determine the current fair market value. Non-traded REITs also typically have higher fees and commissions than publicly traded REITs.
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