A Canadian investor is considering investing in a condominium unit solely for rental income and potential future appreciation. Which of the following statements about this real estate investment is most accurate from a capital markets perspective?

Question: A Canadian investor is considering investing in a condominium unit solely for rental income and potential future appreciation. Which of the following statements about this real estate investment is most accurate from a capital markets perspective?

Answer options: ✅ It offers direct ownership and potential for cash flow, but is illiquid and requires active management.

• It provides diversification benefits similar to a broad bond portfolio, with predictable cash flows.
• It is highly liquid and can be easily converted to cash without significant transaction costs.
• It is regulated under the Canadian Real Estate Investment Trust (REIT) framework by IIROC.

Correct answer: It offers direct ownership and potential for cash flow, but is illiquid and requires active management.

Explanation: Direct real estate ownership provides control and potential rental income/appreciation but is generally illiquid, making it difficult to sell quickly without affecting price. It also requires active management for tenants, maintenance, etc. REITs are regulated, but direct property ownership is not the same.