The illiquidity premium is the additional return an investor requires as compensation for holding an asset that cannot be converted to cash on short notice. Publicly traded stocks and bonds can typically be sold within a day or two, so investors accept lower expected returns for that flexibility. Private real estate sits at the other end of the spectrum: capital is often committed for a defined hold period, commonly five to ten years, with no daily market to exit through.
In exchange for accepting that constraint, real estate investors historically target higher yields than they would demand from comparably risky public securities. The premium reflects both the practical difficulty of selling a building quickly and the time value of capital that cannot be redeployed on a whim. For long-term investors who don't need immediate access to every dollar, the illiquidity premium is one of the core reasons private real estate has earned a place in diversified portfolios.
Further reading: Best Places to Invest $100K in 2026
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