Real Estate Investment: The Holding Period Explained

Holding periods are something that every investor in commercial real estate deals with on a regular basis.

Many investors may question how sponsors determine holding periods and how they impact the transaction’s return.

We will look at holding periods, how they work, and how they impact investors who prefer short or long positions.

What is the Holding Period?

In commercial real estate, the holding period is the time that an investor must hold onto the asset to earn a return through price appreciation, income, or both.

The holding period starts the day a property is purchased and ends on the day the property is sold. While the holding period varies by investment, the average holding period for a commercial property is 5-7 years.

Holding periods are significant because they give owners time to execute their business plan for the property. A holding period also helps investors calculate their potential returns and understand how long their investment will be tied up.

Market conditions can affect the length of the holding period. Therefore, a holding period can be extended past the original plan until the market conditions are optimal for sale.

How Does a Holding Period Work?

As sponsors work to put together a deal on a commercial property, they will inform potential investors of the projected holding period for the project. The holding period lets investors know how long it might take to return their investment.

Sponsors seeking to assemble the equity capital and debt financing for a project use the holding period to entice investors to commit their money to the project.

Typically these funds are held throughout the holding period before they can sell it. Getting the capital upfront gives the sponsor leverage when pursuing their debt financing. 

Locking in funds is a good thing for a sponsor, but it could be a problem as time goes by for the investor. During the holding period defined by the sponsor, an investor, in most cases, will not be able to access and sell his capital, making it illiquid. 

Both sponsors and investors often find themselves looking for ways to increase liquidity as commercial real estate investments move through the holding period.

What Can be Done About Illiquidity During the Holding Period

With the typical hold period for commercial real estate investments being 5-10 years, the illiquidity of assets can be problematic for investors and sponsors.

The SecondRE Marketplace can help current real estate investors who need liquidity quickly buy and sell fractions of cash-generating commercial and residential properties with the sponsors’ blessings.

The SecondRE Marketplace also opens this market to accredited investors looking to invest in commercial and residential properties. 

The SecondRE Marketplace for the Long and the Short

Commercial real estate investments’ holding period is critical for investors and sponsors.

For investors, the holding period is the time they will often have to commit their capital without access to it during the term of the holding period.

Sponsors use the holding period to attract investors to a project they are managing and help lock in critical capital to help them negotiate better deal financing.

Investors often must endure a long-term holding period as part of their real-estate investment.

The SecondRE Marketplace can get real estate investors out of a commercial real estate deal with the permission of their sponsors so that they can acquire liquidity.

It gives sponsors access to accredited investors looking to invest in commercial and residential real estate and flexibility to current and future investors.

Are you ready to gain access to the SecondRE Marketplace? Click Here to Create an Account and Get Started Today!

Related:

SecondRE - Liquidity for Real Estate

We’re SecondRE

SecondRE partners with sponsors to enable liquidity for their investors.

SecondRE Marketplace enables investors to buy and sell holdings in residential and commercial real estate properties, with the sponsors’ blessing.

By enabling liquidity, sponsors find it easier to attract new investors.

SecondRE Inc. is an American company led by seasoned technology and real-estate entrepreneurs, who have scaled operations all the way to NASDAQ

Related Posts

Real Estate Investment Basics: What is a Sale-Leaseback?

Investors looking to expand their real estate portfolio should consider sale-leaseback transactions, a valuable tool for both buyers and sellers in the commercial real estate market. By selling the property and leasing it back, sellers can free up capital while still retaining the use of the property, and buyers can acquire an income stream with the potential for long-term appreciation. To ensure that the deal is structured in a mutually beneficial way, it’s essential to carefully evaluate the terms of any sale-leaseback transaction and work with experienced professionals. Read our blog to learn more!

Read More

5 Insights to Uncover the Hidden Gems of the Industrial Real Estate Market

Industrial real estate properties are a popular investment choice for those looking to diversify their portfolios and generate steady income streams. From location to market demand: learn the key factors driving industrial real estate investments and the right time to invest. From understanding the impact of e-commerce on the industrial market to the importance of demographic analysis, this blog covers everything you need to know to drive your investment strategy.

Read More

Investing in Real Estate through your IRA

Investing in real estate through an Individual Retirement Account (IRA) can be a smart way to diversify your retirement portfolio and potentially generate higher returns. In this comprehensive blog, we delve into the advantages of investing in real estate through an IRA, including tax benefits and the potential for higher returns. We also explore the types of IRA accounts suitable for real estate investment, including Traditional IRAs and Self-Directed IRAs.
From choosing the right IRA account to finding a suitable real estate investment, and understanding the rules and regulations surrounding real estate investments in IRAs, this blog covers everything you need to know to make an informed investment decision. Whether you are a seasoned real estate investor or just starting out, you want to read this.

Read More

Real Estate Investment Basics: What is a Ground Lease?

Discover the advantages and challenges of investing in ground leases, and how they can be a profitable investment strategy for both landlords and tenants. The blog covers key concepts such as what a ground lease is, how it works, and the advantages and challenges of investing in ground leases for both landlords and tenants. It also discusses the differences between ground leases and traditional real estate ownership, and offers insights into the potential risks and returns associated with ground lease investing. We also cover potential tax incentives and financial benefits that ground leases can offer investors.

Read More

The Accredited Investor’s Recession Survival Guide

The fluctuating stock market that frequently follows a recession poses great difficulty for many investors. Therefore, knowing how to manage the market on the road before and during a recession is a necessary skill. In most cases, the entire real estate market changes when a recession approaches. Learn more in our new blog!

Read More

Real Estate Investments Basics: Capital Stack

Investors who are interested in assessing the risk and predicted returns for a real estate investment should understand the concept of a Capital Stack. Your investment can be designed to mitigate excessive risk or structured for sufficient potential profits by utilizing this model to evaluate tradeoffs. It is one of the most important ways to assess a prospective investment in a commercial property. Learn more in our new blog!

Read More

Why miss out on great Real Estate investment opportunities?

Signing up to SecondRE is FREE and we keep your details confidential.

Once you sign up, you’d get full access to all available opportunities on the Marketplace.