This post is one in a series of posts featuring my wife, The Mrs. I asked her to pretend that she was a wealthy woman with $2,000,000 (million) to invest. This money was needed to provide her for the rest of her life. She is to ask questions that might come up in the course of investigating a new investment advisor. Please check back for more questions.
Question #4: Can I get money out of my real estate investment at any time or will I have to wait?
Real estate is generally a long-term investment. If you have a need for the money you are intending to invest in the next two to five years, real estate is probably not the best investment choice.
Liquidity
Liquidity is defined as: the ability to convert an asset to cash quickly. Also known as “marketability”.
Unfortunately, real estate is not very liquid or easily converted to cash.
The high value of real estate makes it difficult to easily convert it to cash, because buyers often don’t have enough cash lying around to buy a piece of real estate. As well, there are a limited number of buyers that will be interested in any piece of property, reducing marketability.
Quick Cash
There are ways to get cash out of real estate quickly. However, these methods often require selling below the full value or taking out a high interest loan.
The Need for Planning
As we work together to chart a course to retirement freedom, we hope to identify future needs for cash. In our analysis we would include items like college tuition, weddings, and anniversary cruises.
Reserves
If we choose to work together, Maclennan Investment Group requires each investor to have a reserve account that will allow them to meet unforeseen expenses and to cover vacancies in their investments. Usually, this is 3-6 months of property expenses.
In general, you are able to pull cash out of your real estate investment once the property sells or through refinancing the property, if the value has increased.
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