Is Owning a House a Liquid Investment?

Sep 26, 2019 Share

InvestorWords defines liquid investment as, “An investment that one has immediate access to, either the ability to buy or sell the investment (such as a stock or mutual fund) or the ability to access and withdraw funds (such as a savings account).” In other words, liquid investments are the kind of investments that can be easily encashed over waiting for a long period of time. Real estate investment or buying a home can be one of the best investment options but certainly is not an ideal liquid investment. Buying a home ensures good return on investment (ROI) but the procedure needed to encash the amount take from weeks to months. Investing in a residential property guarantees better ROI over a period of time. The real estate market, however, in most of the cases, shows an upward trend. But, you have less control over the ownership of the property. You have to wait till the home you have invested in, is ready for possession. Getting the immediate ownership of the purchased property is an important factor in case of investments. In case of investment in stocks, bonds, equities and mutual funds, you immediately own the ownership to the number of shares or units you buy or invest in. 

And owning a home comes with its own share of other expenses like monthly or annual maintenance surcharge (of the residential complex), electricity bills, etc. After a prolonged period of time, if and when you opt to sell your home, the total price of the home will be decided based on factors like area, ease of commute, its access to central parts of the city, its access to healthcare centres, educational institutions, availability of fruits and vegetable market, amenities (provided by the developer) in the residence, etc.

Basically, the primary reason to own a house is to secure a place to be used as a shelter in the long run. In case you purchase a house in a locality and then give it on rent, either way, you’re providing a shelter solution to another family. So, we can rightfully say that the basic purpose of buying a home is to provide shelter.

Also, to make a significant amount of profit in real estate or from owning a home, it nearly requires 10-15 years to witness and ensure better ROI. But, that does not mean that you should not consider home as an investment option. In fact, it is. It can be considered as one of the secured investment options. And so, any investment in real estate can prove to be beneficial. The very same reason that makes it an illiquid investment option can make it a better investment option. It is often said that the best time to invest in real estate is NOW and the right time to buy a home is NOW. Today’s highest price is going to be tomorrow’s lowest.

Owning a home can earn you huge profit, but that is not the only option for investment. Some investments in real estate assure more liquidity returns than ownership. Real Estate Investment Trust (REIT) is one such investment option. Similar to mutual funds, Real Estate Investment Trust (REIT) has a pool of assets that can help you gain good returns on investment. Simply put, REIT can be considered a kind of company that allows individuals to invest or own shares of the company, in this case, buy shares of multiple real estate properties or other real estate assets. Apartments, towers, buildings, skyscrapers, hotels, resorts, manufacturing units, warehouses and loans or mortgages, sum up the investment factors for REITs. REIT need not necessarily look after the development of a property, but it studies the potential for growth. It is said to study the market trends and provide investors a pool of options for investment. Usually, it is the role of the brokers to thoroughly analyse the market trends and suggest the best possible stock for investment.

There are two types of REITs, namely, traded and non-traded. Traded REITs are listed in the stock exchange while non-traded REITs are the ones that cannot be traded in securities exchange and cannot be easily encashed and thus, can be illiquid over a period of time. Considering all these factors, we can conclude that home may not be the only investment option as far as real estate is concerned. Also, owning a home may not be considered a liquid investment but guarantees high ROI over a period of time.

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