<ul class="summary-list"><li>A <keyword id="6354553" type="COMPANY" weightage="60" keywordseo="real-estate">real estate</keyword> limited partnership (<keyword id="10173783" type="UNKNOWN" weightage="60" keywordseo="relp">RELP</keyword>) is a private investment that pools investors' funds to buy, develop, and sell properties. </li><li>During their lifespan, RELPs may furnish a regular income, but mainly pay profits at the end when their properties sell.</li><li>Although they offer high returns, RELPs also come with considerable risks, and investors can't easily unload them.</li></ul><p>Real estate can be an excellent addition to your investments, not only for its own potential for appreciation and income but also for the <a href="https://www.businessinsider.com/what-is-diversification" target="_blank" rel="noopener">diversification</a> it brings to a portfolio. There are plenty of ways to gain real estate exposure: You could invest in a rental property or a commercial building, or fix-up and flip a house.</p><p>But what happens if you want to invest in real estate but don't want the hassles of the day-to-day management or the landlord duties? Cue the real estate limited partnership (RELP), which lets you pool your money with other investors to buy, lease, and ultimately sell buildings. You passively own these properties - but you actively participate in the profits.</p><p>Because it's a form of private equity, RELPs may not be as well-known as, say, publicly traded real estate stocks or investment trusts (<a href="https://www.businessinsider.com/what-is-a-reit" target="_blank" rel="noopener">REITs</a>). Here's what to know if you might want to partner up.</p><h2>What is a RELP?</h2><p>A real estate limited partnership, or RELP, is a legal entity formed to invest in real estate ventures. The structure allows investors to combine their resources to purchase and develop properties they couldn't afford or manage on their own. </p><p>Like most limited partnerships, RELPs are a private investment - that is, their shares do not trade on stock exchanges. You buy in when the RELP is formed; sometimes ownership stakes become available after the original offering, as well. </p><p>A RELP is meant to last for a finite number of years. During its lifetime, it functions like a little company: It forms a business plan, and then identifies properties to purchase and/or develop, manage, and finally sell off. Profits are distributed along the way. After the holdings are all dispatched, the partnership dissolves. </p><p>There's no standard term for RELPs. "Limited partnerships exist for varying durations, from months to decades, based on the business plan with the target investments," says Tom Blake, founder of<a href="https://flexible.us/" target="_blank" rel="noopener"> Flexible</a>, a tech-enabled real estate company that offers bespoke real estate transactions. Typically, though, RELPs run from seven to 12 years.</p><p>Most limited partnerships also have investment minimums: generally, <a href="http://fc.standardandpoors.com/sites/client/generic/fcon/adv014/Article.vm?topic=5379&amp;siteContent=60396039" target="_blank" rel="noopener">$2,000 or above and often substantially more</a>. With RELPs, the minimum "buy-in" for investors often can be anywhere from $100,000 to a few million, depending on the number and size of the real estate purchases.</p><h2>Who are the partners in a RELP?</h2><p>Every RELP has a general partner and limited partners. Each type of partner has an equity stake, but their contributions, responsibilities, and liabilities vary - and their returns are distributed differently, as well.  </p><h3>General partner </h3><p>The general partner (GP) can be an individual, but it's usually an entity, such as a real estate development firm. The GP is usually an experienced real estate manager who acquires or develops properties on the partnership's behalf. </p><p>It's the GP's responsibility to set up the partnership, secure the financing, and manage the investments. They bear unlimited liability for the partnership's debts and obligations (like mortgages or loans).</p><p>In return for all this heavy lifting, the GP receives an ownership stake in the partnership. They also earn money through fees charged to the partnership - for anything from acquiring properties to selling them, and for management along the way. Similar to a mutual fund's <a href="https://www.businessinsider.com/what-is-expense-ratio" target="_blank" rel="noopener">expense ratio</a>, the management costs alone can range from 5% to 10% annually.</p><h3>Limited partners </h3><p>The limited partners (LPs) are the investors the GP rounds up. After contributing their capital, they are silent partners, pretty much, relying on the expertise (and judgment) of the GP. They generally have a hands-off role in the daily operations - in fact, they're required to. </p><p>What's the attraction, then? Well, along with high returns, there's their limited liability. Limited partners have an ownership stake in the real estate, but "the partnership holds title to the real property, so the individuals do not have to be listed as direct owners," Blake explains.</p><p>That means they bear little responsibility for incurred loans or expenses or costs. They can't be sued. The brunt for those obligations is borne by the GP and the partnership itself. LPs' liability - and potential loss - is limited to the total amount of their investment. </p><h2>What do RELPs invest in?</h2><p>When it comes to RELPs, "all real estate assets are fair game," says Blake. "Single-family homes, multi-family homes, retail, industrial, office, hospitality, land, you name it." Some RELPs invest in dozens of properties, some in only a few, or even one. Often, they specialize in a particular type of property - say, historic rehabs or office buildings. They might invest heavily in commercial property loans or mortgages, too. </p><h2>How are RELP profits distributed?</h2><p>Depending on their focus, RELPs can generate an annual cash flow from rents or loan interest for investors. Usually, though, the payoff comes from selling the appreciated properties, usually in the RELP's later years.</p><p>Ultimately, all profits are shared between the GP and the LP - while it varies a lot, 30% (GP) and 70% (LPs) is a typical split. In many RELPs, the limited partners must receive a specified minimum return on their investments before the GP shares in any of the profits. GPs often get a bonus if the properties register a particularly large gain.</p><p>RELP profits are distributed to the partners based on their ownership percentage.</p><h2>The benefits of RELPs</h2><p>As with any investments, there are pros and cons to real estate limited partnerships. Some of the advantages include:</p><ul><li><strong>Economies of scale</strong>. By combining resources, investors can invest in larger (and potentially more profitable) real estate deals than they could ever afford on their own.</li><li><strong>Tax savings</strong>. RELPs are structured as pass-through entities, meaning the RELP doesn't pay any taxes on its income. So the income and losses from the partnership pass through to each investor and are claimed on their income tax returns at individual, not corporate, rates. More money for you, potentially - or a bigger deduction. Each partner receives a<a href="https://www.irs.gov/pub/irs-pdf/f1065sk1.pdf" target="_blank" rel="noopener"> K-1 form</a> that details their share of income/losses for that year. </li><li><strong>Little work and liability.</strong> Though they're property owners, limited partners don't take part in daily management, and are shielded from unexpected costs and debts.</li><li><strong>Potential for high returns.</strong> RELP investors might look for overall annualized returns that range between 5% and 14%, depending on the type of property. In boom years, they've realized as much as 20% or 30% profit on their properties.</li></ul><h2>The risks of RELPs</h2><p>If you're interested in a real estate investment partnership, be sure to consider these risks:</p><ul><li><strong>Lack of liquidity</strong>. RELPs are usually long-term investments, and it may be impossible to find someone to buy a limited partner interest. You typically have to wait until the property is sold and profits are shared to get your money back.</li><li><strong>No guarantees</strong>. The real estate market fluctuates. Project costs can go over budget. Some RELPs may have trouble getting the zoning approvals and government permits they need. This can delay or even squash projects and negatively impact returns.</li><li><strong>Trust issues</strong>. The general partner has control over the partnership's business operations. That means limited partners have to put their trust in the GP and hope for the best.</li></ul><h2>RELPs vs. REITs</h2><p>RELPs have some elements in common with another popular vehicle, <a href="https://www.businessinsider.com/what-is-a-reit" target="_blank" rel="noopener">real estate investment trusts (REITs)</a>. Both hold a portfolio of properties. Both offer a tax-advantaged, passive way to own real estate: Investors are free from management decisions - they sit back and wait for the <a href="https://www.businessinsider.com/what-are-capital-gains" target="_blank" rel="noopener">gains</a> (hopefully) to roll in.</p><p>But RELPs and REITs differ in many fundamental ways:</p><ul><li><strong>Clientele</strong>: RELPs have high minimum investments and are generally targeted at high net worth individuals or accredited investors who meet certain income and net worth requirements. But anyone can invest in a <keyword id="168019" type="ORGANIZATION" weightage="60" keywordseo="REIT">REIT</keyword>, and shares are often priced in the $10-50 range.</li><li><strong>Public/private status:</strong> RELPs are private equity funds, where REITs are publicly listed and traded daily on stock exchanges. That makes REITs much easier to buy and sell than RELPs, and their pricing more transparent. </li><li><strong>Returns</strong>: REITs are perpetual entities that provide an ongoing income. RELPs tend to be finite arrangements: While they may provide some annual income, the big payoff comes from profits when properties are sold. "They can outperform REITs, sometimes by a wide margin," Blake says. </li></ul><h2>The financial takeaway</h2><p>Real estate limited partnerships let investors pool their resources to buy and develop real estate. For general partners, RELPs provide income and access to capital needed to fund larger projects and deals. Meanwhile, limited partners can invest in real estate and earn passive returns without the day-to-day responsibilities of ownership.  </p><p>But passivity cuts both ways. Limited partners are pretty dependent on the skills and management abilities of the GPs. Their liability is limited, but they can still lose their entire investment. </p><p>RELPs are completely exposed to the ups and downs of the real estate market. And If a partnership owns only a few properties of a particular kind, its potential for loss is even more concentrated. </p><p>RELPs typically yield relatively high returns when compared to other real estate investing options; however, these returns do come at a higher risk. Investors need to have a tolerance for that, as well as the patience to wait for returns and to have their money tied up in the meanwhile.</p><h2>Related Coverage in <a href="https://www.businessinsider.com/investing-reference" target="_blank" rel="noopener">Investing</a>:</h2><h3><a href="https://www.businessinsider.com/real-estate-investing-strategies-tips-how-to-get-started-experts-2020-7" target="_blank" rel="noopener">The ultimate guide to getting started in real-estate investing - according to entrepreneurs who built multimillion-dollar empires from scratch</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/reits-easy-way-invest-in-real-estate-2020-11" target="_blank" rel="noopener">Financial planners say not everyone is cut out to be a landlord, but there's another option if you still want to invest in real estate</a></h3><h3><a href="https://www.businessinsider.com/how-to-diversify-portfolio" target="_blank" rel="noopener">How to diversify your portfolio to limit losses and guard against risk</a></h3><h3><a href="https://www.businessinsider.com/what-is-an-index-fund" target="_blank" rel="noopener">What is an index fund? A low-cost, low-risk way to invest in the stock market</a></h3><h3><a href="https://www.businessinsider.com/passive-investing" target="_blank" rel="noopener">Passive investing is a long-term wealth-building strategy all investors should know - here's how it works</a></h3>

A real estate limited partnership is like a private fund that lets you profit passively from large property investments

<ul class="summary-list"><li>The goal of investing for income is to generate a reliable cash flow from your assets at low risk.</li><li>Common investment income assets include dividend-paying stocks, <keyword id="35147" type="COMPANY" weightage="60" keywordseo="bonds" source="Orion">bonds</keyword>, real estate, annuities, CDs, and money market accounts.</li><li>Though they're traditionally associated with older investors, any portfolio should include some income-producing assets. </li></ul><p>You can classify investors into two basic types. There are those who want appreciation - that is, they invest for growth. And there are those who ask of their assets "show me the money - now." </p><p>We call the latter type income investors. <keyword id="10030996" type="UNKNOWN" weightage="60" keywordseo="income-investing" source="Orion">Income investing</keyword> involves building a portfolio using dividend-paying stocks, bonds, real estate, and other assets designed to generate cash on a recurring basis. </p><p>With income investing, once you buy the asset, there isn't a whole lot more to do. This is buy-and-hold <a href="https://www.businessinsider.com/passive-investing" target="_blank" rel="noopener">passive investing</a> at its best. </p><p>There are multiple types of investment income assets, and ways to invest for income. Here's a rundown of the most common.</p><h2>1. <keyword id="896799" type="PERSON" weightage="60" keywordseo="dividend-stocks" source="Orion">Dividend stocks</keyword></h2><p><strong>What they are: </strong><a href="https://www.businessinsider.com/how-to-invest-in-dividend-stocks" target="_blank" rel="noopener">Dividend-paying stocks</a> are issued by companies that make cash payments per share, generally quarterly, based on how well the company is doing. The two main types of dividend stocks are called common and preferred.</p><p><strong>How they work:</strong> <a href="https://www.businessinsider.com/what-is-common-stock" target="_blank" rel="noopener">Common stock</a> dividends are set by the company's board of directors each quarter. You won't know the amount or even if there will be a dividend until the board decides.</p><p>Preferred stock dividends are more regular: pre-determined, fixed payments over a specified period of time. Also, preferred stockholders their dividends before common stock shareholders get theirs. </p><p>Although common stock dividends are riskier, you stand to gain more. Preferred stock dividends are less risky, but generally lower.</p><p><strong>What to know:</strong> The most consistent, good dividend-payers tend to be from <a href="https://www.businessinsider.com/what-are-blue-chip-stocks" target="_blank" rel="noopener">blue-chip stocks</a> - that is, those of large, well-established corporations. </p><p>How to tell if a dividend is a good one? Look not just at the dollar amount, but at the dividend yield: that is, the company's annual dividend divided by its stock price and multiplied by 100. (It's often indicated on a stock's online listing.)</p><p>Aim for stocks that pay a 2% to 6% dividend yield. That ratio indicates a decent payout relative to a company's earnings and market valuation and helps you avoid companies that may be borrowing excessively to inflate their dividends.</p><h2>2. Bonds</h2><p><strong>What they are: </strong><a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">Bonds</a> are loans to the government or a company. Your income from bonds comes in the form of fixed-interest payments. As the bondholder (lender) you receive a fixed amount of interest income on a regular schedule. When the loan term ends, you receive your original investment back. </p><p><strong>How they work: </strong>The rate of interest you receive on a bond depends on the length of its term - the longer, the higher - the creditworthiness of the borrower, and the conditions of the market. There are three main types of bonds: </p><ul><li>Government bonds, also known as <a href="https://www.businessinsider.com/how-to-buy-treasury-bonds" target="_blank" rel="noopener">Treasuries</a>, are considered extremely reliable because they are backed by the US government, but the tradeoff is a relatively low interest rate.</li><li>Municipal bonds are a form of government bonds issued by states, cities, counties, and other government entities. Interest is exempt from federal taxes and often from state and local taxes as well.</li><li>Corporate bonds are issued by companies (both public and private) and therefore riskier than government bonds. For that reason, they pay a higher interest rate than government bonds. depending on the creditworthiness of the issuer.</li></ul><p><strong>What to know:</strong>  Bond prices tend to go up when the stock market goes down, making bonds a good tool to balance risk from equities, as well as an income source.</p><h2>3. Real estate </h2><p><strong>What they are: </strong>Although it can and does appreciate, real estate often provides a solid cash flow as well. The income derives from rents paid by tenants of residential, industrial, or commercial properties, and sometimes from mortgage interest on the properties as well. You don't have to become a landlord: <keyword id="6425786" type="UNKNOWN" weightage="60" keywordseo="REITs" source="Orion">REITS</keyword> and RELPs are common ways to invest in real estate indirectly. </p><p><strong>How they work: </strong><a href="https://www.businessinsider.com/what-is-a-reit" target="_blank" rel="noopener">Real Estate Investment Trusts (REITS)</a> let you buy shares in a publicly traded company, which pays dividends to you much like stocks. The dividends can vary in both amount and frequency. REITs invest in a variety of projects and are considered ongoing, long-term investments. </p><p>A real estate limited partnership (<keyword id="10173783" type="UNKNOWN" weightage="60" keywordseo="relp" source="Orion">RELP</keyword>) lets you pool your money with other investors to buy or develop real estate properties in a private (i.e., not publicly traded) investment. Formed to operate for over a period of years, a RELP offers excellent dividend payments annually, though the big money comes via distributions when the projects are complete and sold towards the end. As with a REIT, a RELP pays fluctuating dividends based on the type of real estate investments it makes. </p><p><strong>What to know:</strong>  Dividends in both cases are not fixed but can vary, depending on the profit/rent income received by the REIT or RELP. You stand to gain more with a RELP over a specific, shorter period of time than with a REIT. However, because they don't trade on public exchanges, RELPs can be harder to unload; REITs are much more liquid. </p><h2>4. Money market funds</h2><p><strong>What they are: </strong><a href="https://www.businessinsider.com/money-market-account-vs-money-market-fund" target="_blank" rel="noopener">Money market</a><a href="https://www.businessinsider.com/money-market-account-vs-money-market-fund" target="_blank" rel="noopener"> fun</a><a href="https://www.businessinsider.com/money-market-account-vs-money-market-fund" target="_blank" rel="noopener">ds</a><a href="https://www.businessinsider.com/money-market-account-vs-money-market-fund" target="_blank" rel="noopener"> (MMFs)</a> are a special type of fixed income mutual funds that invest in short-maturity, low-risk debt securities that pay dividends like most other income-producing investments. </p><p><strong>How they work: </strong>MMFs are low-volatility investments that may be taxable or tax-exempt, depending on the types of securities held. MMFs operate on the net asset value (NAV) standard, meaning they attempt to maintain a share value of $1. Any excess is distributed as <a href="https://www.businessinsider.com/what-is-a-dividend" target="_blank" rel="noopener">dividends</a>.</p><p><strong>What to know:</strong>  Investors like the NAV standard because it forces fund managers to make regular dividend payments to investors, which provides that steady cash flow income investors prize.</p><h2>5. Certificates of deposit</h2><p><strong>What they are: </strong>Banks also sell income-producing products that many investors include in their portfolios because of their relatively low risk. One of the most common is certificates of deposit (CDs). </p><p><strong>How they work: </strong><a href="https://www.businessinsider.com/personal-finance/are-cds-a-good-investment" target="_blank" rel="noopener">Certificates of deposit (CDs)</a> are a type of savings account that come with terms ranging from six months to five years. The longer the amount of time you must keep your money in the CD, the higher the interest rate. </p><p><strong>What to know:</strong> If you want income (interest) from your CDs, most banks will let you take it out as it is earned at its fixed rate. Your principal, however, is usually locked in for the duration of the CD. </p><h2>6. Money market accounts</h2><p><strong>What they are: </strong><a href="https://www.businessinsider.com/personal-finance/what-is-a-money-market-account" target="_blank" rel="noopener">Money market accounts</a>, sometimes called money market savings accounts, are another common bank product. They pay higher interest than regular savings accounts, but have more restrictions and often require a higher initial balance to get the best interest rate. </p><p><strong>How they work: </strong>You can make withdrawals (including interest) from your <keyword id="9397123" type="UNKNOWN" weightage="60" keywordseo="Money-market-account" source="Orion">money market account</keyword> up to six times a month.</p><p><strong>What to know:</strong>  Money market accounts (and CDs too) are not considered major income investments, but rather savings vehicles. Still, they do earn some return, and of course, are highly liquid: Access is as close as the nearest bank branch. And both are FDIC-insured.</p><h2>7. Annuities</h2><p><strong>What they are:</strong> <a href="https://www.businessinsider.com/what-is-an-annuity" target="_blank" rel="noopener">Annuities</a> are contracts sold by insurance companies that make regular payments to you for a set period or for life. You invest an initial sum, then the money is repaid to you in periodic installments, a process known as annuitization. The payments typically consist of both principal and interest.</p><p><strong>How they work:</strong> The three main types of annuities are: </p><ul><li>Fixed, which pay a set interest rate</li><li>Variable, whose interest rate fluctuates, depending on the investments (usually mutual funds) you choose</li><li>Indexed, which provide a return based on an index, such as the <a href="https://www.businessinsider.com/what-is-the-sp-500" target="_blank" rel="noopener">S&amp;P 500</a>.</li></ul><p>The risk depends on the underlying stability of the insurance company and the type of annuity: Fixed is the least risky and variable the most. </p><p><strong>What to know:</strong>  Compared to other types of investments, annuities are often criticized for high fees and expenses. </p><h2>The financial takeaway</h2><p>Income investing is often associated with older, often retired investors: Common financial wisdom often has portfolios shifting from growth to income as their owners age. Still, all investors can and should include some income producers in their portfolio - as a counterbalance to aggressive growth assets, if nothing else. </p><p>Generally speaking, the more risk you are willing to take or the longer you are willing to let your money work, the higher rate of return you will receive.</p><p>That said, the main purpose of income investing is to produce cash flow with a reasonable amount of risk. Income-producing stocks, bonds, and other securities are meant to be the stable foundation of your portfolio.</p><p>And you can always diversify your risk further by investing in income-oriented <a href="https://www.businessinsider.com/personal-finance/what-is-an-etf-exchange-traded-fund" target="_blank" rel="noopener">exchange-traded funds (ETFs)</a> and <a href="https://www.businessinsider.com/personal-finance/how-to-invest-in-mutual-funds-step-by-step-guide" target="_blank" rel="noopener">mutual funds</a>. Often identified with the words "dividend" or "income" or "high-yield" in their names, these invest in everything from real estate to select preferred stocks to corporate bonds.</p><a data-type="5f74bdeb851d5a30e02f40df">What are junk bonds? A risky yet high-yield investment that can bring rewards if you're willing to take the chance</a><a data-type="61489feb0c828c3fa9191f4a">Understanding what qualified dividends are why they're taxed at lower rates</a><a data-type="613a241ebd69125fd4743686">Start investing in mutual funds in 4 steps</a><a data-type="5f5a55530afbe75a2409da00">ETFs and mutual funds can instantly diversify your portfolio, but they differ in how they're traded, managed and taxed</a>

Investing for income: 7 money-generating assets for your portfolio and how to get started

<ul class="summary-list"><li><keyword id="35175" type="ORGANIZATION" weightage="60" keywordseo="investing">Investing</keyword> in real estate can offer individuals both immediate income and longterm appreciation. </li><li>REITs, RELPs, and crowdfunding are indirect ways to invest in real estate, without requiring hands-on management. </li><li>More direct real estate investments include buying your own home, a rental property, or a property to fix up and flip.</li></ul><p>Channel-surfing these days will almost certainly lead you into some iteration of real estate, from realtors' million-dollar listings to DIY-ers house-flipping. </p><p>While it can be fun to see a dramatic home transformation play out over the course of an hour, it can be more fun to get actively involved. Real estate often proves to be a lucrative investment, offering both income - in the form of rents - and appreciation - when you sell appreciated property at a profit. It's also a good way to <a href="https://www.businessinsider.com/how-to-diversify-portfolio" target="_blank" rel="noopener">diversify your portfolio</a>, as an asset that's subject to different influences than stocks and bonds.</p><p>And for the everyday individual, it may be more accessible than you think. Although it requires considerable time, patience, and (of course) cash, almost anyone can invest in real estate. </p><p>Here are six ways you can get in on this investment-cum-pop-culture-phenomenon.</p><h2>1. Real estate crowdfunding </h2><p>Real estate crowdfunding is a strategy that allows enterprises to raise capital from large groups of individuals. It's done via online platforms that provide a meeting ground/marketplace between real estate developers and interested investors. In exchange for their money, investors receive debt or equity in a development project and, in successful cases, monthly or quarterly distributions. </p><p>Not all real estate crowdfunding platforms are available to everyone: Many are reserved for accredited investors - that is, high-net-worth, and/or highly experienced individuals. Still, there are several less exclusive platforms like <a href="https://www.businessinsider.com/reviews/out?u=https%3A%2F%2Ffundrise.com%2F" target="_blank" rel="noopener">Fundrise</a> and <a href="https://www.realtymogul.com/" target="_blank" rel="noopener">RealtyMogul</a> that allow newbies to invest as little as $500. </p><p>Through these sites, you create an account and either select a portfolio strategy based on your goals, with brokers diversifying your money across a series of investment funds, or browse and select investments yourself, keeping up with their progress through a 24/7 online dashboard. </p><p>Despite their convenience, crowdfunding offerings come along with considerable risk. As private investments, they're not as liquid (easily sold) as other publicly traded securities, like stocks. Think of your funds as being tied-up over the long-term. Fundrise recommends investors have a time horizon of at least five years, for example.</p><h2>2. Real estate investment trusts (REITs)</h2><p>If you want to wade into real estate, investing in a <a href="https://www.businessinsider.com/personal-finance/real-estate-investing-for-beginners-how-to-invest-in-reits">real estate investment trust (REIT)</a> will provide exposure to the market without the time and cost commitment of buying your own property. </p><p>REITs are companies that own, operate, or finance properties and real estate ventures. Like <a href="https://www.businessinsider.com/etf-vs-mutual-fund" target="_blank" rel="noopener">mutual funds or exchange-traded funds</a>, they own not just one, but a basket of assets. Investors purchase shares of a REIT and earn a proportionate share of the income produced by those assets.</p><p>Equity REITs, the most common type of REIT, allow investors to pool their money to fund the purchase, development, and management of real estate properties. A REIT focuses on a specific type of real estate, such as apartment complexes, hospitals, hotels, or malls. Ninety percent of its annual earnings must be distributed to the investors as dividends.</p><p>One big selling point of REITs: Most of them trade on public stock exchanges. So that means REITs combine the opportunity to own, and profit from, real estate with the ease and liquidity of investing in stocks. </p><p>Geared towards generating income, usually from rent and leases, REITs offer regular returns and high dividends. They also appeal to investors because of the unique way that they are taxed: REITs are structured as pass-through entities, meaning they don't pay corporate tax. This effectively means higher returns for their investors. </p><p>If you want to keep your investment liquid, stick to publicly traded REITs (a few REITs are private ventures). You can buy shares through a brokerage firm, IRA, or 401(k). </p><h2>3. Real estate limited partnerships</h2><p>A <a href="https://www.businessinsider.com/real-estate-limited-partnership-relp-definition" target="_blank" rel="noopener">real estate limited partnership (RELP) </a>provides investors with a diversified portfolio of real estate investment opportunities, allowing you to merge your funds with other investors' to buy, lease, develop, and sell properties that would be hard to manage or afford independently.</p><p>Like REITs, RELPs usually own a pool of properties, but they differ in their structure and organization. Primarily: RELPs are a form of private equity - that is, they are not traded on public exchanges</p><p>Instead, they exist for a set term, which typically lasts between seven and 12 years. During this term, RELPs function like small companies, forming a business plan and identifying properties to purchase and/or develop, manage, and finally sell off, with profits distributed along the way. After the holdings are all dispatched, the partnership dissolves. </p><p>They're generally more suitable for high-net-worth investors: Most RELPs have an investment minimum of generally $2,000 or above, and often substantially more - some set minimum "buy-ins" anywhere from $100,000 to a few million, depending on the number and size of the property purchases.</p><h2>4. Become a landlord </h2><p>One classic way to invest in real estate is to buy a property and lease it, or part of it. Being a landlord can come in many forms.</p><p>The first is to buy a single-family home and rent it out, a strategy that will only generate income if overhead costs are low. If your tenant's rental payment doesn't cover the <a href="https://www.businessinsider.com/fixed-rate-mortgage-vs-adjustable-rate-mortgage" target="_blank" rel="noopener">mortgage</a>, insurance, taxes, and maintenance, you're effectively losing money. Ideally, your monthly mortgage payment will be relatively fixed, while rent prices rise, increasing the amount of money you pocket over time.</p><p>Nowadays, you can shop for rental properties online through a site like <a href="https://www.roofstock.com/" target="_blank" rel="noopener">Roofstock</a>, which allows sellers of vacant homes primed for renters to list their properties, facilitates the buying process, and assigns a property manager to the new buyer.</p><p>Another option is "house-hacking," which is when you purchase a multi-unit building and live in one of the units while renting out the others. This strategy decreases your living expenses while simultaneously generating income that can cover mortgage payments, taxes, and insurance. </p><p>A low commitment version of house-hacking is to rent part of your home via a site like Airbnb, which would allow you some extra monthly cash without having to commit to taking on a long-term tenant.</p><p>On the opposite, more ambitious end, you could aim for a condo conversion, in which you buy a multifamily building, rent out the units, and then later turn the units into condos and sell them off individually, says Boston-based realtor and real estate investor <a href="https://www.businessinsider.com/strategy-for-making-money-in-real-estate-investing-2017-3" target="_blank" rel="noopener">Dana Bull</a>. "So the idea is, you buy the building for a little bit of a discount, and then eventually you're able to sell for top dollar," she says.</p><h2>5. House flipping</h2><p>Some people take it a step further, buying homes to renovate and resell. Though those TV shows often make it look easy, "flipping" remains one of the most time-consuming and costly ways to invest in real estate. But it also has the potential to produce the biggest gains. </p><p>To be a successful flipper, you should always be prepared for unexpected problems, budget increases, time-inducing mistakes, a longer renovation timeline, and issues selling on the market.</p><p>It's especially important to build a team of experts - contractors, interior designers, attorneys, and accountants - you can trust. And make sure you have the cash reserves to troubleshoot. Even experienced flippers find a project inevitably takes longer and costs more than they think.</p><h2>6. Invest in your own home</h2><p>Finally, if you want to invest in real estate, look closer to home - your own home. Homeownership is a goal many Americans strive to achieve, and rightfully so. Residential real estate has had its ups and downs over the years, but it generally appreciates in the long-term.</p><p>Most folks don't buy a home outright, but take out a mortgage. Working to paying it off, and owning your home outright, is a long-term investment that can protect against the volatility of the real estate market. It's often seen as the step that precedes investing in other types of real estate and has the added benefit of boosting your net worth, since you now own a major asset.</p><h2>Strategies for successful <keyword id="-541" type="UNKNOWN" weightage="60" keywordseo="real-estate-investing">real estate investing</keyword> </h2><p>Whatever form your real estate investment takes, certain strategies will stand you in good stead.</p><ul><li><p><strong>Be financially prepared: </strong>Real estate is a particularly expensive investment, so you need to have cash on hand for a down payment, partnership share, or to buy a property outright. You'll also need a reserve to dip into if and when something needs fixing, which should be entirely separate from your everyday emergency fund. Before getting started, establish an <a href="https://www.businessinsider.com/online-savings-account-high-yield-emergency-fund-2019-1" target="_blank" rel="noopener">emergency fund</a>, pay off consumer debt, and automate your retirement savings.</p></li><li><strong>Get to know the local market:</strong> There's an old saying: "The three most important factors in real estate are location, location, location." Start by getting to know <a href="https://www.businessinsider.com/how-to-build-wealth-real-estate-investing-advice-2018-6" target="_blank" rel="noopener">the local market</a>. Talk to <a href="https://www.businessinsider.com/things-real-estate-agents-wish-clients-knew-2019-5" target="_blank" rel="noopener">real estate agents</a> and locals; find out who lives in the area, who is moving to the area, and why; and analyze the history of property prices. In short: Do your research and "focus on building relationships with people - because that's what real estate is, it's a relationship-based business," Dana Bull says.</li><li><p><strong>Keep it simple:</strong> A simple strategy can go a long way in real estate investing. If your goal is to generate <a href="https://www.businessinsider.com/investment-income-assets">passive income</a>, don't be fooled into believing you need to go big to make it happen. It's best to start small and keep your expenses low, says real estate investor Chad Carson of <a href="https://www.coachcarson.com/" target="_blank" rel="noopener">CoachCarson.com.</a></p></li></ul><h2>The financial takeaway</h2><p>Real estate investing may be more accessible than you think, and there are multiple ways to get involved in this often lucrative asset. </p><p>Pure investment plays - which don't involve hands-on management from you - include real estate crowdfunding, investing in real estate limited partnerships, and buying into real estate investment trusts. Each of these mitigates the risk of investing in a major project alone or without guidance.</p><p>More direct investments, like buying your own home, a rental property, or a property to fix up and flip, are also valuable strategies. However, it's best to do your homework before settling on one of these ownership methods, ensuring that you're financially secure enough to take on some risk and familiarizing yourself with the local real estate market.</p><p>Bear in mind real estate as a whole is a relatively illiquid asset. Projects can take a while to execute and to pay off. So whenever you think real estate, you almost always have to think of it as a long-term investment.</p><h2>Related Coverage in <a href="https://www.businessinsider.com/investing-reference" target="_blank" rel="noopener">Investing</a>:</h2><h3><a href="https://www.businessinsider.com/what-are-alternative-investments" target="_blank" rel="noopener">Alternative investments are exotic assets that can diversify your portfolio - here are the five major kinds and everything you should know about them</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/real-estate-investing-for-beginners-how-to-invest-in-reits" target="_blank" rel="noopener">Millennials say real estate investing is one of the best ways to build wealth, and you don't need a ton of time or money to start</a></h3><h3><a href="https://www.businessinsider.com/personal-finance/why-im-investing-in-real-estate-to-fund-my-retirement-2020-4" target="_blank" rel="noopener">The richest people I know have convinced me investing in real estate is critical for my portfolio, and I'm tackling it in 3 ways</a></h3><h3><a href="https://www.businessinsider.com/the-latest-coronavirus-and-commercial-real-estate-news-2020-3" target="_blank" rel="noopener">From warehouses to tech office expansions, these are the key commercial real-estate deals and trends to watch</a></h3><h3><a href="https://www.businessinsider.com/how-to-get-started-investing-in-real-estate-during-covid-2020-8" target="_blank" rel="noopener">How to begin investing in real estate, and why you should get started during the pandemic</a></h3>

How to invest in real estate - 6 ways that offer a chance to make money and build long-term wealth

<ul class="summary-list"><li>Real estate investing can generate interest, dividends, rental income, business income, and capital gains, depending on how the investment is structured.</li><li>If you invest in a rental property, you can reduce your taxable income by subtracting any expenses for managing and maintaining the property to rent.</li><li>A 1031 exchange allows real estate investors to swap one rental property for another, deferring capital gains on the transaction.</li></ul><p>There are many reasons you might want to invest in real estate. Owning property can offer income through appreciation - when the home's value increases over time - and can be a source of passive income if you rent it out. And it's a good way to diversify your investment portfolio.</p><p>Investing in real estate also brings tax benefits, like the ability to write-off certain expenses for income properties. But like all things related to the IRS, <keyword id="4480341" type="PERSON" weightage="60" keywordseo="real-estate-taxes">real estate taxes</keyword> can be pretty complex. Below is a look at the tax implications of real estate investing, along with the major tax benefits to keep top of mind. </p><h2>What types of taxes is real estate subject to?</h2><div type="image" title="property tax" height="1666" width="2222" msid="82105886" hostid="261"></div><p>When dealing in real estate, the kinds of taxes you'll be subjected to will depend on whether you're a property owner or simply an investor. For example, if you own a home or condo and rent it out, you'll pay property taxes to your state or local government, income taxes on the rental income you earn, and capital gains taxes if you later sell the property at a gain. </p><p>That's very different from investing in real estate through crowdfunding, a real estate investment trust (REIT) or a real estate limited partnership (<a href="https://www.businessinsider.com/real-estate-limited-partnership-relp-definition" target="_blank" rel="noopener">RELP</a>). Without the hassle of actually owning a property, the taxes you're subjected to are individual income taxes.</p><p>Here is an overview of the different types of taxes you might pay when you own or invest in real estate.</p><h3><strong>Property taxes</strong></h3><p>State and local governments impose property or real estate taxes annually to help pay for schools, police and fire departments, roads, and other state and local services. Property taxes are usually based on the property's assessed value, including the land, buildings, and other improvements. Property tax rates vary greatly depending on <a href="https://www.businessinsider.com/personal-finance/average-property-taxes-every-us-state" target="_blank" rel="noopener">what city and state you live in</a>. </p><h3><strong>Net investment income tax (NIIT)</strong></h3><p>Some types of real estate investing result in <a href="https://www.businessinsider.com/investment-income-definition" target="_blank" rel="noopener">investment income</a>, such as interest and <a href="https://www.businessinsider.com/what-is-a-dividend" target="_blank" rel="noopener">dividends</a>. If you're a high earner and make a lot of money off of your investment income, you will have to pay NIIT, which the IRS applies at a 3.8% rate to certain net investment income. The IRS has outlined <a href="https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax" target="_blank" rel="noopener">on its website</a> who is subject to paying this type of tax, which is based on filing status and modified adjusted gross income (MAGI). </p><h3><strong>Real estate income tax</strong></h3><p>When you rent out real estate, the rental income is considered passive income and is taxed as regular income. Just make sure you meet the IRS' definition of what's considered passive income, which you can do by taking the <a href="https://www.irs.gov/publications/p925" target="_blank" rel="noopener">material participation test</a> to determine whether you actively participated in a business or if it's truly passive income.</p><h3><strong>Business income tax</strong></h3><p>In some cases, renting out real estate counts as a trade or business. This happens only if you provide more than basic services. For example, you could buy a property and turn it into a bed and breakfast, providing linens and meals for guests.</p><h3><strong>Capital gains</strong></h3><p>Selling real estate can also generate <a href="https://www.businessinsider.com/capital-gains-tax-rates" target="_blank" rel="noopener">capital gains</a> if you sell the property for more than its cost basis. Your cost basis is the price you paid for the property, plus any acquisition expenses and improvements, minus depreciation.</p><p>Your tax rate will depend on whether it qualifies as a short- or long-term capital gain.</p><p>Short-term capital gains are from selling assets owned for less than a year, which are taxed at ordinary income tax rates. Long-term capital gains are for assets owned for a year or more and are taxed at a lower rate than ordinary income, with rates ranging from 0% to 20%, depending on your total taxable income.</p><h3><strong>Individual income taxes</strong></h3><p>If you're simply an investor and don't actually own property, any gains earn interest income taxed at the same rate as your other ordinary income.</p><h2>How different <keyword id="640168" type="PERSON" weightage="60" keywordseo="Real-estate-investments">real estate investments</keyword> are taxed</h2><div type="image" title="Property tax landlord" height="1666" width="2222" msid="82105888" hostid="261"></div><p>The taxes you pay on real estate investments depend on the type of investment and the type of income it generates. Here are the four different types of real estate investments and how each are taxed.</p><h3>1. Rental property</h3><p>When you purchase a property and rent it out, you'll owe taxes on your net rental income. This means you're allowed to reduce your taxable rental income by subtracting expenses for getting the property ready to rent and then managing and maintaining it.</p><p>Rental income is taxed at the same rate as other ordinary income, such as wages from a job. <a href="https://www.businessinsider.com/personal-finance/what-tax-bracket-am-i-in-federal-income-tax" target="_blank" rel="noopener">Federal income tax rates</a> range from 10% to 37%, depending on your total taxable income. If you're in the 24% federal income <a href="https://www.businessinsider.com/personal-finance/what-tax-bracket-am-i-in-federal-income-tax" target="_blank" rel="noopener">tax bracket</a>, you'll pay 24% on your taxable rental income.</p><p>However, rental losses are subject to the passive activity loss rules, which can be quite complicated. These rules limit your ability to offset other income with passive losses.</p><p>There are two exceptions that might allow you to used passive losses to offset other income:</p><ul><li><strong>Passive loss allowance</strong>. If your MAGI is less than $100,000, you can deduct up to $25,000 in passive losses against other income. This $25,000 deduction phases out by $1 for every $2 that your MAGI exceeds $100,000. Once your MAGI goes over $150,000, you have no remaining passive loss allowance.</li><li><strong>Qualifying real estate professional</strong>. If you qualify as a real estate professional, your rental activities aren't considered passive income. To qualify, you have to spend more than half of your working time on real estate trades or businesses and spend 750 hours or more on the real property business and rentals.</li></ul><h3>2. Real estate crowdfunding</h3><p>In crowdfunded real estate investing, how you're classified as an investor - non-accredited or accredited  - will affect how you're taxed.</p><p>Non-accredited investors participate in "debt deals," acting only as a lender for other property investors and don't actually own the property. That type of investment generates interest income taxed at the same rate as your other ordinary income and is reported to the IRS using Form 1099-INT. And if you earn more than $1,500 in interest income, you'll also have to <a href="https://www.irs.gov/forms-pubs/about-schedule-b-form-1040" target="_blank" rel="noopener">prepare Schedule B</a>. </p><p>Accredited investors participate in "equity deals." An equity deal gives you shares representing property ownership, and you receive rental income and capital gains. Capital gains may be short-term, in which they're taxed at ordinary income rates, or long-term and qualify for preferential tax rates.</p><p>If you participate in crowdfunding real estate investing, you should receive a K-1 tax form sometime before March 15. This form shows the income or losses from your investment during the prior year and you will use it to complete your individual income tax return.</p><h3>3. Real estate limited partnerships</h3><p>With RELPs, you can earn rental income and capital gains as you would if you'd invested in real estate on your own. There are two partners in this type of business relationship: a "general partner" who takes on the liability and a "limited partner" who is a hands-off investor.</p><p>A RELP isn't required to pay taxes, although it's required to file a Form 1065 to the IRS to report all income to the IRS. The partners then receive a Schedule K-1, showing their share of the investment's net income. The Schedule K-1 is used to prepare each partners' individual tax return.</p><h3>4. Real estate investment trusts</h3><p>Investing in a REIT typically results in two types of investment returns: dividends and return of capital.</p><p>Dividends from a REIT are usually non-qualified dividends, which are taxed the same as ordinary income. A return of capital is not taxable income, but it reduces your basis in the investment, resulting in higher capital gains when you eventually sell your REIT shares.</p><p>At the end of the year, you should receive a 1099-DIV showing your dividend income from the REIT.</p><h2>Tax advantages of real estate investing</h2><p>Real estate investing offers several tax advantages. </p><ul><li><strong>Lower rates for long-term capital gains</strong>. Real estate tends to appreciate over time, so it's common for real estate investors to sell a property for more than they paid for it. As long as you hold on to the property for more than a year, you can benefit from the favorable tax rates for long-term capital gains.</li><li><strong>You can claim depreciation</strong>. When you use real estate for business purposes or rent it out, you can depreciate - or write off - the property's cost over time, which will reduce your tax bill. The IRS has set depreciation periods for real estate: For residential properties, the depreciation period is 27.5 years and for commercial real estate, it's 39 years. For example, if you purchase a single-family rental property for $100,000, you can deduct $3,363 of depreciation per year. You can also depreciate certain improvements, such as replacing the roof or installing a new HVAC system. </li><li><strong>1031 exchanges</strong>. A 1031 exchange lets real estate investors swap out an investment property for a like-kind property and deferring capital gains. While a 1031 exchange can save you thousands of dollars in taxes, they are complicated transactions and come with a lot of tax rules. For that reason, you should always work with a professional to ensure it's done correctly. </li><li><strong>Rental income is not earned income</strong>. Unlike wages from a job or self-employment income, rental income isn't subject to Social Security and Medicare taxes (FICA). While this isn't an enormous benefit compared to other types of investment income, it can result in significant savings compared to normal earned income. For example, say you get a part-time job in which you earn $20,000 per year. You would owe $1,530 in FICA taxes on your wages. On the other hand, a rental property that brought in $20,000 of income per year would result in no FICA or self-employment taxes.</li></ul><h2>The financial takeaway</h2><p>There are many tax advantages to investing in real estate, but paying taxes on these investment returns can be complicated. In order to be prepared for any tax implications you might expect from real estate investing, it's best to work with a tax professional who can explain which tax benefits might apply to you.</p><a data-type="5d0951da0a28490ffd326967">How to invest in real estate - 6 ways that offer a chance to make money and build long-term wealth</a><a data-type="5fc91283647950039a357685">A real estate limited partnership is like a private fund that lets you profit passively from large property investments</a><a data-type="5fda2ac936173573b4327052">Capital gains tax rates: How to calculate them and tips on how to minimize what you owe</a><a data-type="60011bbb0a996d3d50754f25">Where to invest when interest rates are low - 6 fixed-rate vehicles that offer the best returns</a>

How are real estate investments taxed? What potential investors should know

<ul class="summary-list"><li><keyword id="109183" type="PERSON" weightage="60" keywordseo="Liquid-assets">Liquid assets</keyword> are assets that can be converted to <keyword id="37885" type="ORGANIZATION" weightage="60" keywordseo="Cash">cash</keyword> quickly and, by extension, are highly marketable.</li><li>The most liquid assets have a broad pool of buyers and trade on major exchanges: Think shares of major US corporations and bonds issued by the US government.</li><li>The least liquid assets are thinly traded and have high transaction costs: Think real estate, art, and private equity.</li></ul><p>What makes an asset "liquid"? <keyword id="6355375" type="DEFINITION" weightage="60" keywordseo="Liquidity">Liquidity</keyword> basically refers to an item's marketability. The faster you can convert something to cash — and the more value it retains when you sell it — the more liquid it is. </p><p>And what makes an asset easy to turn into cash? Strong demand. The bigger the market for something, the less trouble you'll have selling it. </p><h2>What are considered liquid assets?</h2><p>Investments vary in their degree of liquidity, from those that flow like water to those that are near frozen solid. Here is a basic introduction to assets in order of their approximate but generally agreed-upon liquidity.<br /><br /><strong>1. Cash, bank accounts, and CDs: </strong>Cash is the most liquid asset there is. Whether by hand or by smartphone, you can transfer it in seconds. </p><p>Bank savings and checking accounts are also considered cash — that's why they're called "demand deposit accounts" — the funds can be withdrawn at any time.</p><p>What about a <a href="https://www.businessinsider.com/personal-finance/what-is-a-cd-certificate-of-deposit" target="_blank" rel="noopener">certificate of deposit (CD)</a>? Whether it matures in three months or seven years doesn't really matter, as long as you're willing to pay any early withdrawal penalty it imposes. That penalty, though, makes CDs a bit less liquid than cash. </p><p><strong>2. US Treasuries:</strong> The United States has a strong credit rating and the US dollar is the world's leading reserve currency. So whether you're talking about short-term bills, medium-term notes, or long-term bonds, the demand for US government-issued debt securities, aka <a href="https://www.businessinsider.com/how-to-buy-treasury-bonds" target="_blank" rel="noopener">Treasuries</a>, is perpetually strong.</p><p><strong>3. Stocks and stock funds:</strong> Publicly traded, with posted prices, stock shares are generally easy to unload. The same goes for <a href="https://www.businessinsider.com/personal-finance/what-is-an-etf-exchange-traded-fund" target="_blank" rel="noopener">exchange-traded funds (ETFs)</a>, which trade like regular equities.</p><p>But the liquidity does depend to a large extent on the companies behind the shares, and where they're listed. You'll have no trouble liquidating well-known stocks with high trading volume — <a href="https://www.businessinsider.com/what-are-blue-chip-stocks" target="_blank" rel="noopener">the so-called blue chips</a> — on major exchanges like the New York Stock Exchange or Nasdaq, or popular ETFs from leading investment firms. </p><p>You can sell these stocks and stock funds instantly. It will take two business days after placing your transaction order (T+2) for the trade to settle and the proceeds to appear as cash in your brokerage account.</p><p>Thinly traded stocks — those with low trading volume or that trade over the counter — can be harder to unload. These stocks often represent shares in companies that have a limited or poor track record.</p><p><strong>4. Corporate bonds:</strong> Some corporate bonds trade often, and some hardly trade at all. With this asset, <a href="https://www.businessinsider.com/what-is-a-corporate-bond" target="_blank" rel="noopener">much depends on the creditworthiness of the issuing company</a> — as indicated by the letter-grade credit rating the bond carries.</p><p>Generally, investment-grade bonds from major, publicly traded corporations will be easy to sell. "Investment-grade" refers to the higher (A- and B-level) credit ratings.</p><p>Those with lower credit ratings, aka <a href="https://www.businessinsider.com/what-are-junk-bonds" target="_blank" rel="noopener">junk bonds</a>, are less liquid. Due to their greater risk, they may be harder to sell, especially at your desired price.</p><p>Like stocks, the settlement period for corporate bonds is two business days.</p><p><strong>5. Foreign currency: </strong>The market for exchanging one currency for another is huge. The foreign exchange (forex) market is a highly liquid one: It's open 24 hours a day on weekdays worldwide, which means trades are happening almost all the time. </p><p>However, foreign currencies are most liquid during local business hours — when their home countries' financial <keyword id="31671" type="CITY" weightage="100" keywordseo="markets">markets</keyword> are active. Widely used currencies, issued by powerhouse nations with stable values are, of course, more liquid than those issued by small or economically challenged countries.</p><p>The most liquid currencies include:</p><ul><li>The euro</li><li>The US dollar</li><li>The yen</li><li>The pound sterling</li></ul><p><strong>6. Commodities: </strong>The liquidity of a commodity — a raw material or agricultural product — depends both on what form you hold it in and which commodity you're talking about. </p><p>A grain elevator full of wheat, a tanker of oil, or a mound of gold bars aren't very liquid. But a futures contract or an option on a contract (the right but not the obligation to buy or sell) representing these commodities is. </p><p>The variety of commodity matters too. Broadly speaking, agricultural and energy commodities are more liquid than metals. Among precious metals, gold futures are more liquid than platinum futures; among base metals, copper futures are more liquid than aluminum futures. </p><p>Commodities trade on their own exchanges like the Chicago Board of Trade and the New York Mercantile Exchange. These are open, albeit more specialized, marketplaces than stock exchanges.</p><p><strong>7. Mutual funds:</strong> Although they are popular and easily purchased, <a href="https://www.businessinsider.com/how-to-invest-in-mutual-funds-step-by-step-guide" target="_blank" rel="noopener">mutual funds</a> are less liquid than many other investments because they only trade once a day — when the market closes. In contrast, stocks and ETFs and commodity futures contracts trade constantly throughout the day, and the price is always changing. But everyone who sells shares of a mutual fund on the same day will get the same price.</p><p>Funds are required to keep a certain percentage of their holdings as cash to accommodate investors' requests to redeem shares, but mutual funds that experience significant outflows can temporarily suspend redemptions. If that happens, you won't be able to sell until they resume them again.</p><p><strong>8. Municipal bonds:</strong> Municipal bonds, or munis, are debt instruments issued by local governments and nonprofits to fund projects like roads, schools, and hospitals. The bonds themselves are infrequently traded and are not considered very liquid (in fact, they faced a particular <a href="https://markets.businessinsider.com/news/stocks/main-street-lending-program-federal-reserve-start-initiatives-by-june-2020-5-1029216582" target="_blank" rel="noopener">liquidity crisis</a> in March 2020).</p><p>Rather, investors tend to buy and hold them for the triple-exempt tax-free interest they offer. </p><p>Munis can be liquid if they're held in a bond ETF — in which case, like stocks and corporate bonds, have a two-day settlement period.</p><div type="image" title="Finalassesttable 02" height="3468" width="5000" msid="79196386" hostid="261"></div><h2>What assets are considered illiquid? </h2><p>Certain assets are more challenging to buy and sell because they are unique and/or have small markets. These non-liquid or illiquid investments tend to be tangible assets — physical investments — or investments that don't trade publicly. </p><p>Commonly considered illiquid investments include:</p><ul><li><strong>Real estate:</strong> Property moves slowly, as each transaction is individual. Deals take months, even years to close. You can invest in RELPs (real estate limited partnerships) by pooling your money with other investors to buy, develop, or lease property. If you want to sell your interest before the project is complete, one of the other limited partners might be willing to purchase it. Finding a new partner to buy you out, though, can be a challenge.</li><li><strong>Gold bullion:</strong> <a href="https://www.businessinsider.com/what-is-a-gold-ira" target="_blank" rel="noopener">Gold bars and coins</a> often have to be kept in special storage facilities. And selling them needs to be done through precious metals dealers. Finalizing details can take weeks, and involve transportation as well as transactional costs.</li><li><strong>Collectibles, fine art, and antiques: </strong>Assets like these are also hard to sell for top dollar on short notice. These pricey items have to be physically stored in ideal conditions and are often sold at auction, with the auctioneer taking a considerable dealer's cut. </li><li><strong>Private placements/equity:</strong> Let's say you're offered shares in a private startup. What happens if you later want to sell, before it goes public? Since these securities are not registered on an exchange, there's no easy market for them. In addition, because they are restricted securities, you will have to hold your investment for at least six months after purchase. </li></ul><p>A quick note on the newest kid on the investment block: cryptocurrencies (Bitcoin, tether, ethereum, et al). In a literal sense, digital money is highly liquid, and it does resemble the forex market. But the "crypto" market overall trade volume is much lower. And because the asset class hasn't been around long (12 years) and prices can be volatile, most people still classify cryptocurrency as a highly speculative — and illiquid — investment. </p><h2>The financial takeaway</h2><p>Saying an asset is liquid means it is easily cashable — and, by extension, highly marketable. If you can sell an asset for the price you want at the time you want, it's highly liquid.</p><p>Why is liquidity important for your finances? Well, having ready money on hand — if not under the mattress, then accessible in your checking and savings accounts — is always important, in case of emergencies or unforeseen expenses.</p><p>At the same time, you don't want to keep too much of your money in cash: Even the highest-yield <a href="https://www.businessinsider.com/personal-finance/what-is-a-savings-account" target="_blank" rel="noopener">savings accounts</a> don't keep up with inflation, especially after taxes. </p><p>Maintaining the right amount of liquidity among your investments is a balance — and one of the considerations in creating <a href="https://www.businessinsider.com/what-is-diversification" target="_blank" rel="noopener">a well-diversified portfolio</a>. Ideally, you'll have enough cash to handle a layoff or new roof without selling off assets you wanted to keep, but you won't hold so much cash that you fall short of the investment returns you need to meet your long-term goals.</p><h2>Related Coverage in <a href="https://www.businessinsider.com/investing-reference" target="_blank" rel="noopener">Investing</a>:</h2><h3><a href="https://www.businessinsider.com/how-to-invest-in-gold" target="_blank" rel="noopener">Beginner's guide to investing in gold: The major ways to buy and trade gold, and the benefits and drawbacks of each</a></h3><h3><a href="https://www.businessinsider.com/what-are-penny-stocks" target="_blank" rel="noopener">Penny stocks are cheap and often see massive gains, but they're also very risky. Here's what you should know before investing.</a></h3><h3><a href="https://www.businessinsider.com/bonds-vs-cds" target="_blank" rel="noopener">Bonds vs. CDs: The key differences and how to decide which income-producing option is better for you</a></h3><h3><a href="https://www.businessinsider.com/etf-vs-mutual-fund" target="_blank" rel="noopener">ETFs and mutual funds can instantly diversify your portfolio, but they differ in how they're traded, managed, and taxed. Here's what you should know.</a></h3><h3><a href="https://www.businessinsider.com/what-is-a-reit" target="_blank" rel="noopener">REITs are a way to own real estate without becoming a landlord — here's how they work, how to invest, and the different kinds to invest in</a></h3>

You Searched For "relp" and got 5 results

A real estate limited partnership is like a private fund that lets you profit passively from large property investments

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How are real estate investments taxed? What potential investors should know

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What are liquid assets? A guide to the investments that are easiest to cash in, and why they're important

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