An investment in anything is as good as the returns received, the stability of the option, and the liquidity options available therein. Liquidity is important since it helps you benefit from the returns that are generated. As a thumb rule, the easier the liquidity options in any investment, the more lucrative the mode of investment.
So, what is liquidity? In simple terms, the ease of converting an asset into cash is called liquidity, without affecting the market price. From this point of view, cash is the most liquid asset to have.
Why is Liquidity Important?
Liquidity is important for investors, whether retail or institutional. CRE (commercial real estate) investments are a rather illiquid asset to liquidate. The easier the liquidity, the quicker the investment can release funds when the time calls for it.
To make liquidity easier in CRE, fractional ownership can be used. Through this, a group of investors gains rights to percentages of the property. When the time comes to liquidate their portions, they can simply transfer ownership and get back their investment. In a traditional investment model involving CRE, the entire asset needs to be liquidated if any investor need to get their investments back.