How liquid is each real estate investment strategy?


Liquidity vs. illiquidity: 

How liquid is each real estate investment strategy?

If you're interested in real estate investing but also concerned about how quickly you can increase your cash flow, keep reading. Here are different real estate investment strategies by their liquidity risk.


Buy-and-hold strategy.

Liquidity level: Illiquid asset

To start, a buy-and-hold investment strategy is what most people think about when they consider property investment. This strategy involves buying a property, finding a tenant to rent it, and collecting rental income. Typically, this strategy has one of the highest levels of real estate liquidity risk because after you might have waited for the property to appreciate before you sell it for profit, it's usually not easy to sell it off in the market because the real estate market isn't very liquid.

Whether you are interested in investing in residential or commercial real estate, this type of investment strategy is best for investors who have a long-term outlook and can wait it out when it's time to sell.


Crowdfunding.

Liquidity level: Moderately liquid asset

Real estate crowdfunding is a financing method now used by real estate developers to raise capital to finance projects. Typically, these developers will use a digital platform to pool money from individual investors to fund their projects. Eventually, to pay the investors with dividends.

While it is possible to sell your shares in a crowdfunding investment, you need to be conscious of something known as a "lock-up period." In real estate investing, a lock-up period is a time frame during which investors are prohibited from selling their shares. Typically, this period can last for a few months to a few years. It's up to you to do your homework and make sure your investment horizon matches the crowdfunding platform's rules.


Real estate investment trusts (REITs) and property funds.

Liquidity level: Liquid asset.

A real estate investment trust (REIT) is a publicly traded company that either owns or finances income-producing properties. Investors have the opportunity to buy shares in these companies, and in exchange, they receive dividends. Meanwhile, a real estate fund is a managed fund that primarily invests in listed real estate companies.

If you're hoping for stock-market-like levels of liquidity, investing in a REIT may be your best bet. In particular, shares of a listed REIT anytime the market is open.



While real estate assets may cause more of a liquidity crunch than some other assets, it's important to realize that liquidity levels do vary depending on your investment strategy.

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