Benefits of a Private Mortgage REIT vs. Public REITs
7 minute read
December 3, 2023


Real estate Investment Trusts (REITs) have evolved as a mainstay for diverse investment portfolios, offering a blend of income and growth derived from real estate. However, investors who are interested in optimizing their portfolios need to understand the distinction between private and public exchange-traded REITs before they purchase. 

In this article, we’ll lay out the unique benefits and risks of private mortgage REITs and public, exchange-traded REITs, explaining in detail the differences in accessibility and liquidity. 

What are the comparative advantages of private REITs vs exchange-traded REITs and who are they best suited for?

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Definition and overview of private mortgage REITs

A private mortgage REIT is a real estate investment trust that is not listed on public stock exchanges. 

  • They invest primarily in mortgage loans and mortgage-related securities and derive income from the interest earned on these financial assets.
  • They offer investors an opportunity to gain exposure to the real estate lending market and are typically accessible through private placements or other direct investment means.

Key characteristics of private mortgage REITs

Private mortgage REITs are marked by their exclusivity and the tailored investment opportunities they provide. 

  • Exclusivity: They often feature higher entry barriers in terms of investment minimums but are not subject to the same market volatility as publicly traded securities—as such, they can offer more stable income streams. 
  • Long-term commitments:  However, because they are not subject to a public trading market, they are less liquid and usually require longer-term commitments from investors.

What are exchange-traded REITs?

Exchange-traded REITs are publicly traded on stock exchanges, making them accessible to a broad range of investors. 

They offer a way to invest in large-scale real estate operations, including shopping malls, office buildings, and apartments. 

These REITs provide ease of access that private REITs do not, allowing investors to buy and sell shares similarly to stocks.

Pros and cons of investing in public REITs

What attracts most investors to exchange-traded REITs is their liquidity; shares can be bought and sold rapidly, providing flexibility for certain financial game plans. 

However, public REITs are more exposed to market fluctuations, which can lead to higher volatility in prices. 

Furthermore, they may be more correlated with broader market movements, reducing their effectiveness as a diversification tool.

Comparing returns: Private mREITs vs. exchange-traded REITs

When comparing returns, investors must look beyond mere percentages to understand performance metrics fully. 

Private mortgage REITs often aim for higher yields, leveraging the private lending market’s competitive interest rates. 

They are not directly traded in the market—thereby unaffected by daily market swings—potentially leading to more consistent performance.

Yield comparisons and historical performance trends

Historically, private mortgage REITs have proven efficient at competitive yields, primarily due to their focus on higher-interest-rate loans and less exposure to market downturns. 

This has been particularly evident during recent market uncertainties, where private REITs have shown resilience compared to their public counterparts.

Liquidity and access: Private vs. public REITs

Liquidity is a crucial differentiator between private and public REITs. While public REITs can be traded instantly like stocks, private REITs do not offer the same level of liquidity. Their shares are redeemed by the trust, which can occur at intervals and under terms set by the REIT’s management, often aligning with longer investment time horizons.

Investment thresholds and accessibility for investors

It’s quite typical for private REITs to have higher investment thresholds. This can limit accessibility to high-net-worth individuals or institutional investors. 

While this exclusivity can be a barrier, it can also be a benefit—it targets more sophisticated investors who seek to invest substantial capital for potentially higher returns. 

Conversely, exchange-traded REITs are more accessible, with the possibility of investing through small share purchases, appealing to a wider audience, including retail investors.

Diversification and risk management in private mortgage REITs

Private mortgage REITs offer a distinct risk profile due to their operational structure and investment focus. 

They afford a level of diversification not always paralleled in the public market because they typically deal with a variety of loans and securities that are less sensitive to daily market changes. 

This diversification can provide a cushion against downturns in any single real estate sector or geographic location—think local factory closings or natural disasters, for example. 

Moreover, the risk management process in private mortgage REITs often involves rigorous credit assessment and due diligence, which helps in maintaining a robust portfolio with controlled risk levels.

Market volatility and interest rate exposure in Public REITs

Public REITs’ prices are subject to the ebb and flow of investor sentiment and broader economic conditions, making them more volatile

They are also more sensitive to interest rate changes; when rates rise, the cost of capital increases, and the value of REITs can decline. 

Investors must consider these factors, balancing the potential for higher short-term returns against the possibility of abrupt price movements and interest rate risk.

Regulatory environment: Private REITs and public REITs

One of the most significant factors is how the regulatory environment differs for private and public REITs. 

Public REITs are subject to extensive reporting requirements and oversight by organizations such as the Securities and Exchange Commission (SEC). They must adhere to strict guidelines regarding transparency, accounting practices, and information disclosure. 

Private REITs, while still regulated, are not bound by the same level of public disclosure, allowing for less regulatory burden but also less information available to the investor.

The impact of regulations on investment strategies

Investment strategies must adapt to the regulatory climate of each REIT type. 

The stringent requirements for public REITs mean that investors can access a wealth of information to inform their decisions, while the opacity of private REITs may require a higher degree of trust and reliance on the REIT’s management. 

Connecting and speaking to a private mortgage investment firm would be the best first step.  

Making the choice: Is a private mortgage REIT right for you?

Choosing between a private or public mortgage REIT requires a thorough assessment of your investment objectives and how much volatility you can withstand. 

Private REITs often appeal to those with:

  • A higher capital threshold
  • A preference for stable, long-term income streams

In contrast, public REITs might be more appropriate for those seeking liquidity and are comfortable with more significant market exposure.

The role of professional advice in selecting a REIT investment

Professional real estate expertise is indispensable when navigating the complexities of REIT investments. 

Advisors can provide insight into how each type of REIT aligns with individual financial strategies and current market conditions. They can also help decipher the tax implications and regulatory considerations unique to each investment option.

How to get started with Marquee Funding Group’s private REIT

For those leaning towards the stability and potential benefits of private mortgage REITs, Marquee Funding Group offers tailored options that cater to discerning investors. 

By consulting with our team, you can gain a comprehensive understanding of our private mortgage REIT offerings and how they fit into your overall investment plan. 

With core values of loyalty and exceptional customer service, we’re committed to the craft, the process, and working with you.

Explore your options with Marquee Funding Group and solidify your portfolio with the power of informed real estate investment choices.

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