Your real estate can be hard to sell. With inspections, repairs, appraisals, unknowns, and waiting for your buyer’s financing approval, it can take you 30-45 days or much longer to sell.
Compared to stocks, gold, and mutual funds, real estate is an illiquid investment class.
Is that good or bad?
As is usually the case with real estate, the answer is: “It depends.”
Sure. If you need money from a fast sale, then real estate’s illiquidity is clearly detrimental. If you’re going to need a big lump of money soon, then don’t tie up that portion in a real estate investment.
Consider the other side of the coin – the long-term side. Because your real estate is hard to sell, there’s no such thing as “panic selling” in real estate.
That means that real estate prices are more stable than stocks, gold, and mutual funds. A stock can lose 15% of its value in one day. In real estate, it’s unusual for its value to plummet 15% in one year.
Additionally, a 15% loss in your Facebook stock can happen with little warning, like one disappointing quarterly earnings report. Your energy mutual fund’s value can evaporate 15% in one week with a surprise OPEC announcement.
As Rich Dad Advisor Ken McElroy wisely once joked with me, “Real estate is dumb and slow.” He’s right.
Before a 15% drop in the value of your real estate, you’re often provided with ample early warning. Perhaps that’s an announcement of new housing developments (higher supply), local job layoffs (less demand), or widespread irresponsible lending practices (unsustainable pricing).
If real estate were quick to buy and sell, pricing would go from fairly stable and foreseeable to volatile and unpredictable.
Robert Kiyosaki says that you’re a smart investor when you’re on the edge of the coin. That’s because from the edge, you can see both sides.
Consider yourself a smarter investor than when you began reading this because now you can see both sides of the liquidity coin.
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