This archive report was first published on 24 August 2020.
August 24, 2020, marked a significant day in the world of personal finance, as investors began to realize the benefits of real estate illiquidity. According to Michael Obagas, a leading expert in the field, illiquidity premium is the excess return an investor earns in an illiquid asset compared to a similar investment in a liquid asset.
Illiquidity premium demystifies the myth that illiquidity is always associated with risk. In fact, it justifies the importance of having a portion of your portfolio in illiquid assets, making illiquidity a good strategy to introduce in a portfolio.
Real estate, in particular, is considered an illiquid asset due to its lengthy execution, expensive transactions, and complex understanding. However, with the right fund manager, investors can successfully exploit illiquidity premium.
The key to successful real estate investment lies in the fund manager's ability to conduct rigorous research on location, develop an appealing concept, and incur the right development costs during the construction period.
Investors seeking to balance their portfolios and mitigate market volatilities may find real estate illiquidity to be a valuable strategy, offering a stable appreciating asset and potential for recurring revenue. By considering a long-term investment horizon, investors can exploit this strategy and balance their portfolios in an efficient and effective way, especially during a crisis period.
