Real estate is usually held as part of a larger portfolio, and is generally considered an alternative investment class. Real estate fits well as part of a portfolio because it has several qualities that can enhance the return of a larger portfolio, or reduce portfolio risk at the same level of return.
Benefits of real estate
Some of the benefits of having real estate in your portfolio are as follows:
Diversification Value – Real estate returns have relatively low correlations with other asset classes (traditional investment vehicles such as stocks and bonds), which adds to the diversification of your portfolio.
Yield Enhancement – As part of a portfolio, real estate allows you to achieve higher returns for a given level of portfolio risk. Similarly, by adding real estate to a portfolio you could maintain your portfolio returns while decreasing risk.
Inflation Hedge – Real estate returns are directly linked to the rents that are received from tenants. Some leases contain provisions for rent increases to be indexed to inflation. I
Ability to Influence Performance – In previous chapters we’ve noted that real estate is a tangible asset. As a result, an investor can do things to a property to increase its value or improve its performance. An investor has a greater degree of control over the performance of a real estate investment than other types of investments.
Visit Ndatani Enterprises for real value properties.