Is real Estate A Liquid Asset Or Illiquid Asset
The liquidity of an asset depends on various conditions such as the place or location of the asset, market value, demand, and availability, cost of selling, etc. (Asset Definitions)
What Are Real Estates Assets
Real estate assets refer to those properties that hold a significant monetary value or land. Some of the most popular real estate assets are:
- Commercial Building
- Residential Homes
- Land
- Apartments
Normally these assets are held for a long-term period in the vision of investments. These assets change their market value with time, and their demands and supply also change as per the market condition.
Generally, real estate assets generate regular rental income from the tenants. These assets are generally considered a stable investment choice.
Is Real Estate A Liquid Asset
Real estate assets do not fall in the category of liquid assets because these assets take time and cost to convert into cash.
The following are the reasons why real estate assets are considered illiquid assets:
- Real estate assets have a limited market because of demand, location, cost, type of property, and market condition
- These assets are associated with a lot of costs such as legal registration fees, taxes, broker commissions, and documentation
- These assets take much time to sell out, especially during the time of inflation or instability in the market
- Real estate assets are often acquired through the loans
NOTE: real estate asset such as publically traded real estate investment trusts (REITs) is more liquid than physical properties.
Conclusion
Whether real estate assets are valuable investments but they are not considered as liquid assets because they required a lot of time and effort to convert into cash.
FAQs
What are the three main factors that determine real estate liquidity?
Demand in the market, location, and transaction cost are the main factors for determining real estate liquidity.
Are rental real estate assets liquid?
The majority of the investors do not buy these assets for the short term or for gaining cash for a small period. They take much time to sell out in the market, so they are not considered liquid assets.
Is real estate more liquid than stock?
Stock is the liquid assets while the real estate assets are the illiquid.