In a way, money is like water: it comes before us in different states. I explain; It is well known to all that water can be in a solid, liquid or gaseous state.
In the same way, money is presented to us in different ways and we must be able to know in what state it is convenient for us to have it according to our economic situation at all times.
Index of contents
What is liquidity?
The keyword is liquidity. Liquidity is the ability of an asset to be able to be exchanged for any other and thus transact. In this sense, cash is the most liquid asset that exists since it can be exchanged instantly for any other good that we want to acquire.
Real estate and other real estate properties, which make up what we call a person's assets, have a lower degree of liquidity than cash since, having already banished barter in modern economies, it is necessary to convert it into liquid in order to acquire other goods or face payment obligations (debts) that we may have acquired in the past. To do this, it will be necessary to sell it (it will take time) or to mortgage it .
In both cases, the reference to convert the assets in question to liquid will be its value at that specific time. You read correctly, the value, not the price.
Differences between value and price
Only the fool confuses value and price - Antonio Machado
Value and price are not the same . It is really important to keep in mind that it is the value and not the price of any asset (for example a home) that really must be taken into account when managing your wealth (no matter how small) in a correct way.
The price of an asset is the product of the interaction between supply and demand and is generally subject to a lot of volatility. The value, on the other hand, arises from the future monetary flows (profits) that an investor expects to obtain from an asset, in this case from a property.
In other words:
Price is what you pay and value is what you get - Warren Buffet
In this way, a good investment opportunity occurs when the price is lower than its value , and vice versa.
The value of a home
The value is therefore the basic reference when turning an asset into liquidity. The value is the maximum that a seller can expect to receive from a rational buyer in the event of a sale and also determines the maximum amount that can be loaned when mortgaging the asset - in the case of private equity mortgage loans this amount is normally 40% of the value of the property that acts as collateral -.
It is important that all those owners who are thinking of turning part of your assets into liquid have this last point well in mind so that both your sales and credit expectations correspond to the reality of market values; otherwise, these properties will last forever while being for sale and it will not be possible to obtain the desired liquidity.
The degree of liquidity of a home
Although to make correct decisions in the management of personal assets, especially in the case of the sale of real estate, it is not only necessary to take into account the value; It is also important not to lose sight of the degree of liquidity of the property in question.
This is the period of time that we can wait until the property is actually sold and, therefore, until it becomes liquid. This depends fundamentally on the demand for properties of these characteristics in that specific area.
For example, a property located in the urban center of a provincial capital is generally quite liquid - there are always exceptions that respond to other reasons - because there will always be a constant flow of demand looking for housing in that area. However, a large farm located very far from large urban areas is generally a low liquid asset, since the profile of potential buyer for this product is much smaller and, consequently, it will take much longer to sell it.
Who should you sell your home to
It is important to take into account two more factors: the need for speed or not in turning a property into liquid and the type of buyer.
Thus, if a seller does not have a peremptory need for money and only wants to get rid of one of the properties, the most sensible recommendation will be to sell it to an individual who is looking for that home to live in, since although he will need more time, he will also get a price very close to the real value.
However, if a seller has an urgent need, for whatever reason, for immediate liquidity, he can resort without any problem to professional investors who will acquire his home in just a few days, that yes at a price lower than its value.
Mortgaging to reunify debts is the best option
But not everything is selling, sometimes it is advisable to mortgage; This certainly occurs when it is necessary to do a debt reunification . It is very common, in the cases that we deal with in the office, we find situations in which, due to the accumulation of debts from various personal loans and credit cards, clients suffer a real economic drowning.
In these cases, it is advisable to use the equity value to turn it into liquid for a moment but without losing your property (mortgage) since the problem is only specific and the existing income allows you to face the resulting installments quite comfortably.
At harlanschocolates.com we group all these debts into one so that the client can pay 50% less than what they paid before, bringing peace of mind to many households again.
The bridge loan
Another interesting option, and more and more frequent, is the bridge loan . The bridge loan - of which our firm is one of the leading references in Spain - allows the client to quickly convert part of the value of their home into liquid and at the same time sell it at a price very close to the value, without having to resort to professional investors.
It consists of mortgaging a home that you want to sell by obtaining a kind of advance , which will be returned once the home is sold, with enough time and tranquility to do so at a good price.
The benefits of owning a home
As a final reflection, it is important that all owners keep one idea in mind: having a property is fortunate that it allows you to maneuver in difficult specific situations; If unfortunately you find yourself in this situation, do not be afraid to consult with professionals about the best possible solution for each case.
At harlanschocolates.com we will be happy to advise you and help you. Our financial analysts , with more than 15 years of experience in the sector, will offer you a free study without obligation to try to make the bad economic situation you are going through simply become a thing of the past.