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Real Estate Can Be a Liquid Investment, Depends on Your Approach

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Apr. 15 2022, Published 8:41 a.m. ET

Is real estate a liquid investment? Many people ask this question and the simple answer is always no. However, certain types of real estate investments are liquid. It all depends on how you approach the investment.

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Trillions of dollars are invested in real estate properties across categories such as residential, commercial, and industrial. If you purchase a house for your family, it becomes a real estate investment. You could sell the property in the future and pocket a profit if it makes more sense to rent than own a home. Real estate assets tend to appreciate in value over time, which is why they are attractive for long-term investors.

Real estate isn't always a liquid investment.

An investment is considered liquid if you can convert it into cash almost instantly. While there's a vibrant real estate market out there, you can’t turn your home into cash immediately. It can take months before the property gets a buyer and the transaction is complete. Since you’ll need to wait until you can take money out of a building or land you put up for sale, real estate properties are considered illiquid assets. Cars and collectible artworks also belong in the non-liquid assets category.

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Are there liquid real estate investments?

A real estate investment where you own property directly is illiquid. If you’re interested in a real estate investment but want an easy exit opportunity, go for indirect exposure. Instead of purchasing and owning a property, buy real estate company stocks. You can invest in real estate ETFs. You can easily buy and sell stocks and ETFs. Also, you can start investing with smaller amounts of money than you would need for a down payment when purchasing a property.

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What are some good liquid investments for everyone?

No single investment is perfect, which is why investors are advised to diversify their portfolios. You can diversify your portfolio across different investment products or do liquidity diversification. For long-term investments, illiquid assets such as a real-estate property or an art fund may be ideal. If you want to invest but have the option to access your money almost immediately if you need it, the most liquid assets are cash, stocks, ETFs, and bonds.

real estate investment options
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If you have cash, you can put some of it in a checking or savings account. If you have a financial emergency, you can access the money in the account. Stocks, ETFs, and bonds are liquid assets because you can almost instantly change them into cash. However, keep in mind that some stocks may be more liquid than others. For example, while you may instantly get a buyer for blue-chip stocks like Coca-Cola, it may take time before you sell penny stocks on the OTC markets.

Are cryptos liquid investments?

Major cryptocurrencies such as Bitcoin and Ethereum are highly liquid. In fact, there's a debit card that lets you spend your crypto just like cash. However, beware of meme cryptos because they can appreciate quickly and be illiquid.

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