So, after writing what you just wrote, you are not ready to call it a terrible investment. OK, I will call it a terrible investment. This doesn't mean that it is definitely impossible to come out OK, or even well. It just means, why bother? Like you said, 80% of these are awful. I would say that this one is very likely to fall in this class. If it weren't, some local accountants and lawyers would have bought most of the shares and sold what was left to their clients/friends.
Here is where a local REIT may make some sense:
1.) You know the guy running it. He's an honest, responsible, shrewd person. Expenses are low.
2.) There's a liquid local market. Ideally, you're buying the shares second hand, and the shares are more liquid than houses.
3.) You rent. You may buy some day in 2-3 years, but not now. When you do, you can easily sell the shares. Buying this REIT gives you assets that help offset your consumption (of housing)
4.) Tomorrow, you can sell this back for at least 97% of what you paid for it.
Under those circumstances, after reviewing the prospectus, balance sheet, etc, I'd buy.
I do agree that whatever you do, never listen to a bank for investment recommendations.
Yes; lawyers and accountants are going to buy the shares if this is a well-run REIT. That may be a good signal. The local desk quant from an investment bank might buy it too. They will have a clear reason for buying this- they rent, or the portfolio is underpriced (unlikely). But when they buy houses, you still have a comparative advantage for owning these shares and it's worth more to you than it is to the quant. They will sell to you for less than what a perfectly knowledgeable and rational investor would be willing to pay for it under your circumstance. You don't own a house, they do, and this offsets your consumption risk.
If a fee-only financial planner suggested this to me; if he said there was a way to get all the sales charges back as 13b1 fees to cover my tax return for the year or cover financial planning for me- if I trusted the guy running it, I'd buy.
There's a place- a small place- for efficiently run, well-managed, local REITs, with liquidity that's not completely unreasonable. Generally in the portfolios of renters who are planning on staying in the area and perhaps buying a house one day. When you buy a house, get this thing the heck out of your portfolio.
Look, you rent. If this neighborhood gentrifies and gets more expensive, you're going to be forced to pay higher rents. It makes sense to have an asset that offsets that risk, and this fits the bill. This also captures this local risk that you face a lot better than a national REIT. That's not to say it's a great investment- the bank will *probably* screw you on expenses and sales charges, and the REIT *may* be run by an idiot or a spendthrift. If you can buy shares second-hand, you're probably going to get a better deal. But I wouldn't dismiss the idea just because a bank is pitching it to you- I'd just refuse to trust the bank for any sort of investment advice, make my own decision on it, and try to shop for a better deal from someone else who has shares. Just because timeshares are a horrible investment if you buy directly from the resort doesn't mean it never makes sense to buy one used.