For all of the potential downsides of traditional paper assets (volatility, low yields), liquidity isn’t one of them. Liquidity simply refers to how easy it would be to quickly sell an asset to another person if needed. Real estate in general is much more illiquid than paper assets.For instance take stocks. If your sentiment changes about Apple or Google’s profitability, you can nearly instantly sell all or some of your position during market hours because there is a ready group of willing buyers on the other side of the transaction. This group could otherwise be referred to as a “secondary market”. Contrast this with a home, which even in the best of circumstances could take several weeks or even many months to sell depending on market conditions.
Many of the alternative investments I participate in have very low to no liquidity because there is not a robust secondary market of willing buyers. Take real estate crowdfunding as an example. At this point I have done several small private loans for fix and flip projects on various real estate crowdfunding sites. The typical duration has been one year. If for some reason I would have needed that money back earlier, there was essentially no mechanism for that to happen. The post below highlights the beginning of a secondary market for real estate crowdfunding securities. This represents a natural, and I believe necessary evolution if these investments are ever to achieve mainstream acceptance both from institutions, and individuals. As an early adapter, this gives me confidence that this asset classes has the potential to be around for the long-term!
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