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Using Property In An Investment Portfolio Yields Good Results For The Lowest Risk

It is always worth including property in an investment portfolio. Its volatility is of the lowest and it has the added advantage of dividend income. Although the appreciation in sale price might not be as high as stocks, which have lower capital gains tax, there is the advantage of dividend income. Even when they markets are down they are a hedge against inflation and this would be the best time to buy because prices can only go up.

You can either invest in privately owned property, which could be jointly owned, or publicly traded Real Estate Investment Trusts (REIT's). By it's very nature real estate is very stable because the price can't really vary too much even in the worst of times. REIT's are based on futures and they are traded often the so their price will tend to vary a bit more.

In order to follow trends, mean-variance analysis us used. The indexes used for this are the NAREIT for REIT's and the NPI index. Because private real estate is not bought and sold on a regular basis it is a lot more difficult to get accurate data.

The NPI is compiled on a quarterly basis from the sale price of apartments, hotels, industrial, office and retail. Since it is unlikely that these assets will be sold on a quarterly basis the value of the majority of them will be appraised for value. Because the index is quarterly and often based on estimates it might not indicate actual market volatility. The performance of actual property could also vary widely from the index.

The first published paper which showed the value of using both forms of investing in real estate proved that the highest efficiency was achieved when both where used together. NCREIF data was manipulated to account for more realistic volatility. The results showed that up to 44.5% could be represented in a portfolio. 15% of this would be REIT's and 30% direct real estate.

Results where calculated in increments of 5 years with the longest period being 25 years. Across all these time periods except for 20 years, REIT's on their own where either first, second or third in performance. Private property was the top performer over 5 years and the combination of both created the best results with the lowest possible risk.

In the 15 year period it was shown that REIT's on their own where 3 times less volatile than a combination of stocks and bonds. Across the board there where efficiency gains when making use of both REIT's and private property in an investment portfolio. Thus it is always a good strategy for all but the most high risk options.

You can get more details and information about property depreciation easily! Learn about the services offered by a experienced quantity surveyor Gold Coast professional today.

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