When most investors think about their real estate assets, they believe them to be illiquid, meaning they are not easily converted into cash from their physical property form. This belief, dominant throughout the financial industry and across investing sectors, has formed some of the guiding principles that govern real estate investing and real estate investor behavior.

Too bad it’s wrong.

The fact of the matter is you can sell any building you want at any time if you are willing to sell that piece of property at the market price.

The problem real estate investors tend to encounter is that they are not always happy with that market price. When the price is “too low,” they counter by arguing that real estate is not liquid.

There is always a sales price, however. It is just that the price may factor in a loss if you end up selling at a time when the market rate is lower than you might like.

Think about how we invest in stocks:

Stock investors accept losses and risk as part and parcel of the investing equation. Just like real estate investors, they want to buy stocks low and sell them high, but most are used to market fluctuations that cause the values of their portfolios to rise and fall. This is standard in stock investing because it happens frequently, and we expect some degree of volatility from our stock market investments.

On the other hand, major changes tend to happen in a given real estate market every six to 10 years, particularly in terms of the market actually changing direction. If you bought a building 10 years ago and it is not worth substantially more now than it was when you bought it, you would consider that a disaster. Real estate investors are spoiled, and it sometimes can lead to bad decisions because they have trouble letting go, liquidating, an investment that objectively should no longer be in their portfolio.

They hold on because they have an emotional investment in avoiding real estate loss and psychologically, they do not want to admit they have made a mistake or that what is considered “conventional” real estate investment performance (which is to say, positive appreciation) did not pan out this time.

Human beings are not necessarily rational in their investment decisions. To experience true success in real estate investing, you must become as rational as possible about your portfolio. That includes adjusting your view of “the way things work” when necessary.

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  • Samuel Freshman

    Samuel K. Freshman is the founder & CEO of Standard Management Company and the author of Principles of Real Estate Syndication, the industry "bible" on the topic. He may be reached at sfreshman@standardmanagement.com or learn more at standardmanagement.com.

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