It is easier than ever before to invest in properties, with real estate investment trusts and exchange-traded funds allowing standard investors to deal in various property locations and types. Besides real estate exchange-traded funds and REITs, other industry players like property management companies facilitate investors. The one owned by Reuven Gradon is an example of a property management company that makes investors’ life easier by handling property-related things.
So there is no reason why investors cannot consider real estate as a potential option to diversify their portfolio. Real estate offers more benefits like the ability of it to go up in value and generate passive income from rentals.
The average annual return from non-residential property investment over the last 5 years was 9.85%, as per the NCREIF’s January 2019 data. This was accomplished, alongside low volatility in comparison with bonds and equities, for risk-adjusted returns that are as good as or better than the competition.
Critics say that real estate is not all that volatile because transactions are infrequent and third-party appraiser-determined property values often lag the trade. Irregular appraisals and transactions smooth out returns, when reported values underestimate real market values during an economic upturn, plus these overestimate the values during a downturn.
Historic volatility estimates have to be adjusted up, but unexpected situations arise in real-time real estate markets. The 2010 flash crash is an example of that situation, where $1 trillion in equity was suddenly erased. In an economic environment where the algorithmic trading dynamics are murky and market volatility issue exists, the steadier real estate pricing is attractive.
Stable and Attractive Income Return
The considerable proportion of overall return that accrues out of tenants over the course of a long period is among the key features of property investment. Over a period of 30 years starting from 1977, nearly 80% of real estate pay-off came from flows of rental income. This helps lessen volatility because investments relying more on the income return are often less volatile compared to those depending more on the return of capital.
The real estate space is attractive as compared to more conventional income return sources.
A different advantage of putting funds into house or land is the diversification potential of real estate. It and other major classes of the asset are hardly related. This means by including real estate into your diversified asset portfolio, you can reduce portfolio volatility, plus get a higher risk-adjusted return.