What is an Illiquid Investment?

What is an Illiquid Investment?

The liquid rate that an asset is converted into cash determines how easy you can enter or exit an investment. Time is a central factor when investing, and liquidity determines how much time it takes to get your money once an asset matures. Liquidity even helps when taking money out as the market shifts against you. As long as you decide on the liquidity of your investment assets, you can exit your positions according to a strategy that fits you.

When Market Assets are Liquid

Liquid assets are investment instruments that convert into cash with relative ease. The quality of the asset isn’t determined by its liquidity, however. A liquid investment can still present unsatisfying returns, though, it’s easy to get in and out of. Here are some factors that determine the liquidity of an investment:

- Market Participants:
The more people that are involved in buying and selling, the more likely it is that you can close a transaction when you need to.

- Transaction Size:
Large-buy orders, for example, can help clearing agencies, for the bulk of orders can accommodate the market’s sellers.

- Daily Turnover:
The number of transactions play a role, for even when the participants are few, the constant trade orders sustain opportunities for entering and exiting.

- Economic News:
Positive and negative news influences the liquidity of an asset. Positive news can lead investors to flood a market and make buying difficult. Sellers can, likewise, enter the market to make buying easy.

Factors that Establish Illiquid Conditions

An illiquid asset is one that you can buy or sell but with a longer timeframe needed to complete an order. Factors that lower liquidity are determined when you buy or sell.

- Long Term Investments:
The timeframe that someone holds an investment within dictates how long the market takes to acquire or sell an asset.

- Market Prices:
The higher that prices are, the fewer the buyers will be. Prices that go lower allow more participants to get involved and actively trade.

- Market Closures and News:
Bad news, for example, when a company goes bankrupt, can force you to hold an asset longer that you intend to.

Starting a Real Estate Investment Group of Your Own

Starting a Real Estate Investment Group of Your Own

Real estate is one of the best investments anyone can make. As the old saying goes, God isn’t making any more land. Broadly speaking, real estate tends to not only hold its value, but to go up in value over time. It’s a great way to build wealth to pass on to children, too.

However, it can be difficult to learn the ropes of real estate investment. First-time landlords may not know how to vet tenants effectively. They can often lose months of rent due to cleaning up messes or waiting to evict non-paying tenants. Cheap properties available to young investors can also be problematic. Properties bought at auction, for example, may be tied up in legal proceedings.

Forming an investment club can be a great alternative. When people pool their money and experiences, they’re able to make better decisions for the long term. With a larger pool of money, it’s possible to take on some fringe or difficult properties, along with more desirable ones.

Real estate clubs also benefit from the experience of all their members. Clubs may include professionals like lawyers, accountants and salespeople, who each bring different skills to the table. Before the internet, when real estate clubs operated on a face to face basis, assembling a good roster could be difficult. Now, thanks to the internet, forming an investment club is much easier. There are crowdfunding options, and options like REIT funds. The crowdfunding platform stREITwise is revolutionizing the way investors get into REITs.

Finally, a real estate investment club can be organized along a variety of different lines. People can pool their money to buy rental properties. They can pick funds or REITs to put money into. Most real estate investment groups do charge fees, but starting one of your own can eliminate or mitigate those costs.

Real estate is one of the most sound investments anyone can make, but going it alone can still be a bumpy ride. Forming a real estate group means minimizing exposure to risk, and benefitting from the experience of others in the group. There’s always demand for real estate on both the residential and commercial side. It’s a strong, stable field and one where even modest investments can really pay off.