Because a private REIT is available for a fixed price over the initial raise period, there are certain advantages to investing towards the end of the raise rather than at the beginning. Typically, sponsors raise a minority of the capital over most of the raise period. The bulk of the capital is raised at the end of the raise period, just prior to closing. This is because the success of the REIT in the initial phase is uncertain, and only a few, if any, assets have been acquired. In this sense, it is a blind pool investment. To help compensate for the blind pool risk early in a REITs equity raise, a discount on share price or a greater preferred return may be offered to early investors. Also, investors with larger initial investments can receive these share price discounts to help compensate for the perceived risk.
After the raise has picked up momentum and a good number of assets have been acquired, the eventual success of the REIT is clearer in terms of achieving the targeted raise goal. Then the investor is able to look at the already acquired assets. To clarify this point, a $100 investment acquires the same share value, or the percentage interest of the REIT, throughout the raise period. Investors who invest at the very end acquire the same percentage at the same price as those who entered at the beginning. The earlier investors accrue cash flow over a longer period of time, but the advantages of investing later outweigh the early cash flow, resulting in the somewhat imbalanced raise rate and schedule of most private REITs.
A new advantage to REIT investing is that the REIT dividend qualifies for the 20 percent Qualified Business Income Deduction per the 2017 Tax Cuts and Jobs Act. In addition, dividend income is sheltered by depreciation which flows through to the investor as a net taxable rent less depreciation on Form 1099. While REITs typically own properties in various income tax states (as well as non-income tax states), the REIT investor is not required to file a tax return for those states and can save on tax return compliance costs.
Public REITs are registered with the SEC (unlike a DST, TIC, or Fund), and often have lower suitability standards and are available to certain non-accredited investors. While the suitability standards vary from state to state and are detailed in the PPM, many public REITs are available to investors with a total net worth of $250,000, or a total net worth of $70,000 and an average annual income of $70,000. Informally, these standards are known as the 250 70/70 suitability standard.
Private REITs are available only to accredited investors. The Security and Exchange Commission defines an accredited investor as an individual with either greater than $1 million in net worth (excluding the equity in your principal residence) or net income for the last two years of $200,000 or greater ($300,000 if accreditation is based on a married couple) with a reasonable expectation of such earnings in the current year.