Addressing liquidity in real estate investing

The term liquidity, in a financial context, refers to the ability of an asset to be quickly converted into cash, without significantly affecting its market price.

Real estate investments are considered among the so-called illiquid investments, precisely because a property needs time and resources to be sold and “converted” into a monetary amount. So, an investor who needs quick liquidity and has invested in real estate may encounter some challenges.

Let's delve into the difference between liquid and illiquid investments, with a focus on YELDO's strategies for meeting the needs of real estate investors. 

Difference between liquid and illiquid investments

In simple words, we can say that liquid investments are those that can be easily and quickly converted into cash. Stocks, bonds, and mutual funds, which can be sold in the financial markets quickly and with relatively low transaction costs, offer investors the ability to access their money quickly, should the need arise.

Conversely, illiquid investments take longer and often also involve higher costs to be converted into cash, albeit for greater security.

Real estate investments are seen as safer than other forms of investment because they are backed by a tangible asset: the property itself. This can provide some stability because, regardless of market fluctuations, a property maintains an intrinsic value, which may even increase over time.

However, it is precisely this tangible nature that also results in less flexibility, making financial transactions in real estate more difficult to liquidate quickly. The sale of a property can take months, if not years, and involves incidental expenses, such as real estate agent fees, taxes, and legal fees. Another variable that should not be underestimated is the fact that the market value of a property can vary greatly over time, even downward, depending on local market conditions, making liquidity even more problematic.

For the same reasons, other investments such as works of art or luxury goods are generally considered illiquid.

YELDO's approach to liquidity in real estate

As the market keeps evolving, YELDO's mission remains the same: providing direct access to unique investment opportunities in real estate. Thanks to our unique diversification strategy, we posted an annualized return of 14.3 percent in 2023, versus a traditional portfolio consisting of 60 percent stocks and 40 percent bonds, with a rate of return of 8.4 percent. You can find out all our numbers in our Performance Report 2023. 

So, how do we at YELDO approach the issue of liquidity in real estate?

By structuring fairly short transactions, 12 to 36 months, with an average of 20 to 24 months, and including investment opportunities that offer quarterly or semiannual coupon payments.

This results from the fact that shorter investments reduce the period during which the principal is locked up, allowing investors to get their funds back relatively quickly, while quarterly or semiannual coupons provide regular cash flows, further improving liquidity for investors.

Through these strategies, YELDO is able to offer its investors greater flexibility and access to liquidity, effectively mitigating one of the rare disadvantages associated with traditional real estate investments.

Here are some examples of our recently financed deals:

Luxury Residential Refurbishment in Principality of Monaco

• Senior secured loan of up to EUR 22m for the refurbishment of a luxury residential asset in the city centre of the Principality of Monaco
• Sponsor with extensive track record in real estate investment, development and management with a predominant focus on refurbishment of luxury residential properties
• Loan duration of 14 months, distribution at maturity, and 48% LTV

Senior secured bond to finance 2 logistics assets

• Senior secured bond of EUR 9.5m to finance use conversion and permits works for 2 land plots near the main industrial cities of northern Italy
• Leading Italian developer with 20+ years of experience in urban redevelopment and regeneration with a predominant focus on Lombardy and Milan
• Bi-annual coupon, institutional security package and 48% LTV

Explore how YELDO's approach to real estate investment can enhance your portfolio's liquidity and flexibility.

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