Never Run Out of Cash

Real estate can be categorized as an ‘illiquid’ asset class, meaning it doesn’t generally change hands overnight or day-by-day like stocks or bonds. It takes a great deal of work to buy and sell real estate compared with these other investment classes. Because of this, it is imperative to protect your overall cash balance, or liquidity, when considering buying or selling real estate.

Historical banker Nathan Rothschild is coined with saying, ‘Buy when there’s blood in the streets’. What he meant is to buy when there is fear and people are in a less than favorable position with their assets. Too often you see this in real estate where a seller is strapped for cash and must sell quickly, lowering their price swiftly and conceding to price negotiations. Think about the real estate developers whom frequently go project to project with vast swings in their cash balance. We are seeing this play out with homebuilders putting a hold on their new projects, and focusing on selling current inventory to generate more cash.

Even if you are an average Joe, thinking about your cash balance and emergency savings is crucial to your financial well-being and ability to buy or sell real estate in a position of power. You never want to be the potential buyer who cannot come to terms of the deal due to your inability save. Nor do you want to sell your home for a significant discount because you or spouse got laid off. Warren Buffet is known for always having more than enough cash is his businesses so he can ‘sleep well at night’. Something to think about if you’re not getting enough shut eye.