Real Estate Vs Liquid CashBy
Akhila Masapogu, 06-Feb-2020
From each investment that an individual makes, the expectation is extremely high so as to attain maximum profits. The individuals are seeking investment options that have a high potential of easy return, with negligible risk of any loss. It is due to this reason that individuals are confused about making an investment in real estate or liquid cash.
Real estate investment involves ownership, purchase, rental, management, and sale of real estate, with the prime motive of making a profit. For the appropriate development of the real estate, the best approach is realty property. Real estate is a kind of asset which has a very limited relative liquidity in comparison to other forms of investment. Moreover, this asset is capital-intensive.
Liquid cash is an asset that can be converted into cash. Therefore, liquid cash is quite similar to cash, only in the process of converting the value of liquid cash is impacted, by a little bit. There are certain aspects which determine the liquidity of the asset, which includes the presence of an established market, with a huge number of individuals who want to buy, and the facility of easy ownership
Current Market Circumstances
The current market for real estate highlights the fact that though the prices of the real estate will stagnant and the market conditions will be tough. But, according to the new trends that will be emerging in the year 2019, the market condition of real estate is expected to improve, which makes it one of the best options of investment. On the other hand, the market of liquid cash is facing humongous risk, highlighting a high reduction in the value of liquid cash, due to the latest valuation that has been conducted by SEBI. It is due to this current and estimated future market circumstances that highlight that investing in liquid cash will not be a beneficial move for an individual for a certain time.
Performance of These Assets: Long-term & Short-term
The majority of the financial experts states that investment in liquid cash is more beneficial if it is for the short-term. The majority of the experts highlight the fact that investment in the liquid cash should be limited to a day to six months, as they are very efficient for saving money, Moreover, with the utilization of systematic transfer plan (STP), the chance of attaining high returns are more, which will also help in beating volatility over a certain period of time. in comparison to the benefits offered in the short-term, long-term investment in liquid cash is less profitable. Also, the risks increase immensely with the expansion in time.
On the other hand, real estate investment has a different performance status. The performance of the real estate asset improves with the increasing time, which is also determined by various different factors. In addition to this, the value of real estate assets will increase with the passing time, which highlights that there is an increase in the value of real estate assets. In addition to this, it also highlights that the real estate asset is not beneficial for a short-term investment, as the prices can remain stagnant or maybe hiked a bit. There are very few chances that the prices would decrease, but it can happen too.
Risks Involved in Liquid Cash Investment & Real Estate Investment
No investment is risk-free and so, liquid cash and real estate investment are not different. The two main and obvious risks that are associated with liquid cash are the rates of interest risk and the other is a credit risk. When a change occurs in the interest rate, then it will immediately affect the prices of liquid cash. On the other hand, with the latest valuations conducted by SEBI, the price of the liquid cash will be affected, which will hamper the profits of the people.
On the other hand, real estate assets also face many risks that can occur due to the current market conditions, idiosyncratic risk, replacement cost risk, and many others. These are all general risks that are associated with the real estate industry. These risks are manageable if appropriate actions are taken by the owner of a real estate asset at the correct time. Experts at Assetmonk inform them about the different risks that might be prevailing in the real estate industry, so that the owners of a real estate asset, could postpone their plans of resale and wait for the correct time.
Liquidity of an Asset
With the real estate asset, the owner does not have to monitor keenly when to exit the market. In addition to this, with the facilities offered by the organization Assetmonk, the owners of real estate assets now have a platform to put their offer to a wide range of audiences, along with having the opportunity to negotiate too. This will help in offering the owner of real estate assets with high profits, which no other investment can afford. The liquidity risk with liquid cash is very high, the owners need to monitor the market very closely, as they should know the perfect time to make an exit. This time is extremely crucial, as a slip can reduce the value of the liquid cash by a huge margin.
Real estate assets or the real estate industry functions majorly on the resale of assets. This is determined by a number of different factors that govern the industry, which can impact the value and the profits of the asset. But, for the owner of a real estate asset, the facility of resale can be both positive and negative. However, the resale of the liquid cash at the wrong time will impact the value of the asset massively. The resale of liquid cash is riskier in comparison to the resale of real estate assets.
With an organization like Assetmonk, the owners of real estate assets have the opportunity to inquire regularly about the market conditions, the current rate, and many other different aspects, so as to make a wise decision.
Liquid cash is an asset that can be converted into money/cash. Therefore, it’s quite similar to cash. Only in the process of converting the liquid cash into cash, the value of it is impacted by a little bit.
The risks associated with liquid cash investment are:
- Interest risk
- Credit risk
- With the interest risk comes the effect of price variation on liquid cash.
The majority of financial experts state that liquid cash investment is very beneficial if it is for the short-term, as they are very efficient for saving money. But long-term investment in liquid cash is not very profitable. Also, the risks spike up immensely with the expansion in time.
On the other hand, real estate investment has a different performance scenario. Real estate’s performance improves with the increasing time, which is also determined by various different factors which also means that there will be a potential increase in value of assets as well. Also, it should be noted that the real estate asset is not beneficial for a short-term investment, as the prices can remain stagnant or may hike a bit. There are very few chances that the prices would drop, but it’s possible too.
The liquidity risk with liquid cash is quite high. The owners have to monitor the market very closely, as they should know the perfect time to exit. This exit time is extremely crucial, as a slip can decrease the value of the liquid cash by a huge margin.
The real estate industry mainly functions on the resale of assets. This is determined by various factors that govern the industry which have the potential to impact the value and the profits of the asset. But, for the real estate asset owner, the resale may be positive or negative. Whereas, the resale of the liquid cash at the wrong time will show massive negative effects and cause a very huge loss.
Therefore, it is to be noted that the resale of liquid cash is riskier in comparison to the resale of real estate assets.