Have a question in mind that “Is Real Estate a Liquid Investment or Not?”.
Anything that holds financial worth is an asset. Whether it belongs to a company, organization, or an individual, an asset is essential for determining their worth and helping them stay financially stable. Assets may include cash, property, equipment, and inventory.
However, these assets are only of help to the owner or company when you can quickly turn them into cash. In a financial fiasco, even assets worth billions will be useless if you can not turn them into cash. This ability to turn financial assets into cash is called liquidity.
What are Liquid Assets
Liquid assets are the financial assets owned by a company or individual that you can easily convert to hard cash or banknotes. These assets are essential for several reasons, including combating financial emergencies and taking care of liabilities.
Liquid assets do not lose their market value or worth when being converted to hard cash. The liquidity of an asset depends on several factors, including how easy it is to transfer ownership of that asset.
What are Non-Liquid Assets?
Non-liquid assets are also called illiquid assets. You can not easily convert these assets to cash. For illiquid assets, you have to sell them and transfer ownership to retrieve liquid money. The selling of assets can take some time, and it can also negatively affect the asset’s value depending on the market and buyer. A few examples of illiquid assets are cars and collectibles.
Is Real Estate a Liquid Investment / Asset?
Real estate includes all your property, and lands including commercial and residential estate. It is a profitable market for investment and making money. However, since you can not tap into real estate value quickly and requires effort to liquidate, it is safe to say that real estate is not a liquid asset or investment.
Why is Real Estate Considered a Non-liquid Asset?
Real estate investments are non-liquid assets. There are several reasons that make real estate a non-liquid investment.
In the wrong or declining market, selling real estate quickly to recover cash can result in a loss in the original value of the real estate. While real estate is an asset that hardly depreciates, certain conditions can result in a loss for the owner.
Real estate also takes a significant amount of time to sell. The process of advertising your property, getting a real estate agent, picking a buyer, and completing all required documentation and paperwork can take several months to years.
In case of a financial emergency where a business might need immediate funds to pay damages or debts or save themselves from bankruptcy, real estate can not salvage the company; hence it is called a “non-liquid” asset.
Should You Invest in Real Estate?
While it is true that real estate is a non liquid investment, it does not mean that it is an entirely fruitless asset. For any business or individual, having a combination of liquid and illiquid assets is very important.
Liquid assets are more likely to plummet in value than non liquid assets. They are more volatile and hence can see a negative trend in value under several circumstances.
On the other hand, illiquid assets allow you to store value for a more extended period. The price of these assets remains stable for a long time, and hence your money can be kept safe by diversifying your assets.
Real estate is the best kind of non liquid investment you could tap into. Unlike other non-liquid assets, such as a vehicle, real estate’s market value only appreciate with time, with only rare exceptions. A used car might not retain the exact value you bought it for, but your real estate will always maintain its value and will likely increase over time.
That is why real estate investments are a great option to secure your money and make money with appreciation in worth.
Final Words
Real estate is not a liquid asset. However, it is a vital non liquid asset that can help you make money and save it for an extended time without depreciation or depletion. A mix of liquid and illiquid assets is essential for the financial stability of an individual or company, and real estate provides just the correct value to diversify your finances.
