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What Is Self-Liquidating?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 September 2014
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Self-liquidating is a term that is used to describe any investment in which the acquired stock, bond, property, or other holding has the inherent capability to offset the expense that was incurred in order to acquire the asset. In many cases, self-liquidating assets can go on to generate profits after creating enough return to cover that initial expense. There are a number of examples of this type of investment activity, ranging from municipal projects to real estate.

One example of a self-liquidating asset would be the construction of a building or toll bridge for use in a city or town. Because the building could be leased out to tenants and generate a regular income, it has the inherent ability to eventually pay off the total cost of the original building project. In like manner, the toll bridge would eventually generate enough revenue to offset the initial investment. From that point forward, both projects would be able to remain self-sustaining and even earn additional profits that could be used to fund other municipal projects.

The same basic concept applies in terms of residential real estate. An individual could purchase a house with the intent of leasing the property and creating a monthly stream of revenue. Assuming a suitable tenant is found, the property begins to generate regular income. Over time, that income offsets the initial investment made by the owner, and begins to generate ongoing profit.

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Self-liquidating income can be realized from participating in various types of investment markets, such as the foreign currency exchange market. Savvy investors could identify a trend involving a particular currency and earn enough return to pay for the original purchase and realize a profit as well. For example, the currency investor could buy a given currency while it is relatively weak, hold onto it until it becomes strong, and then sell it for a substantial profit over the original investment.

Engaging in self-liquidating financial deals requires that the buyer have a good sense of what will remain a desirable asset, or what will ultimately fail to be worth that initial investment. Without this ability to properly evaluate an investment opportunity and know how to exploit it to best advantage, any attempt to secure properties or other investments and earn a profit is likely to fail. For this reason, investors tend to look closely at all relevant factors related to the investment, such as past performance and future potential, before choosing to buy into the venture.

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SkyWhisperer
Post 2

@MrMoody - I think that a lot of assets can be considered self-liquidating, like stocks for example. I prefer stocks myself over gold or real estate.

What I like about stocks (as opposed to real estate or gold) is that it’s really easy to liquidate them. In my opinion, the definition of self-liquidation should also incorporate the concept of how easy it is to sell off the investment.

The construction project example the article talks about is self-liquidating, but I think that it takes a long time to realize a return on that investment.

MrMoody
Post 1

Gold is a self-liquidating asset, in my opinion, if prices continue to rise. From what I understand it’s very easy to sell as well.

Now that doesn’t mean you can’t go wrong with gold. Prices can fall as well, in which case you could lose money too.

But gold is in limited supply throughout the world, so when a demand does exist, the prices increase fairly steadily. Gold is also a considered a safe asset that investors flee to when stocks take a beating.

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