Real estate has lost much of its appeal for Scott Anderson.

The Newport, Calif.-based, fee-only planner used to steer his clients into non-traded REITs for the generous dividends and appreciation they provided. But he’s had second thoughts, and even though real estate is currently making a comeback, he’s steering clear.

Nontraded REITs initially attracted Anderson because they typically have a liquidation plan: “You know up front that you’re tying up your money for a set period of time, say 7 to 10 years, and then you’re going to get it back.” But that illiquidity, he explains, is also their downside, and if you invest in them, “you need to ensure that you really won’t need the money over a long period of time.”

To illustrate his point, Anderson cites one such REIT in which he invested for both himself and his clients some years back. At the start of the real estate downturn in 2009, the REIT stopped paying out dividends, and while Anderson agrees that the move was justified—since the REIT’s management needed the capital to pay down debt and ensure the REIT’s survival—Anderson and his clients were stuck; because the REIT couldn’t be sold off, they had to make do without the income stream for a couple of years (it has since resumed paying dividends).

This, he notes, is not an uncommon occurrence with REITs, which are often leveraged at 50% of equity and may need to halt dividend payments to ensure that they can meet their debt service.

Publically traded REITS, on the other hand, have two factors that determine their value: One is the underlying value of their properties, but the other is the demand in the marketplace for real-estate securities. “So you have two different supply and demand functions that may not be operating in tandem,” Anderson says.“Since we’ve seen real estate go in and out of favor, it’s not clear that by investing in a publicly traded REIT that you’re really investing in real estate—as opposed to the public’s perception of real estate.” And that makes Anderson nervous.

Another drawback to publically traded REITs is an inherent lack of diversity. “When real estate values are hit in one place, they tend to suffer throughout the national market,” he notes, “making it much harder to diversify compared to something like a stock fund.”

For most of his mass-affluent client base, Anderson says their major real estate asset is their home. As their homes increase in value, that represents a tax deferred increase to their portfolio. In hindsight, Anderson concludes, that’s all the real estate exposure they really need.