Real Estate Investment and Diversification

Adding real estate to your portfolio is a common way to diversify your investments and add stability. Those two results, which obviously go hand-in-hand, are why real estate investment is often suggested to those looking to mature and grow their portfolio. Let’s examine some ways that real estate investment can accomplish those goals.

Diversification

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Why is real estate investment healthy for your portfolio?

The most common reason for interest in real estate investment is diversification, which in turn will maintain the purchasing power of capital. There are well documented studies indicating that there is a low correlation between the real estate industry and stock and bond investments. Take this to mean, empirically, that real estate investment is an effective method of portfolio diversification. Also, consider how many different sectors of real estate investment there are. Coupled with consistent introduction of new products, and buyers end up with many different options. This flexibility allows investors to further mitigate risk.

Safeguard Against Inflation

Real estate has a great method of guarding against inflation. This stems from the owner’s ability to raise rental rates based on inflation and market value. Dissimilar to manufacturing or service based investments, real estate does not need to battle demand elasticity to increase prices. Granted, prices are subjected to competing properties in the same marketplace, but it stands to reason that those shifts would be effected by inflation equally. The hedging effect of real estate investment also maintains the purchasing power of capital because it passes a portion of the inflationary volatility to the tenants.

Portfolio Organization

Keep in mind that home ownership is, for most investors, the biggest single slice of their portfolio-pie. If you are considering moving a portion of your portfolio in real estate, you should incorporate your own home into the overarching strategy. It can be odd to consider your personal home as an important part of your portfolio, but keeping your eye on your long term goals will help give investors perspective.


 

These are just a few of reasons why real estate investment is an important part of one’s portfolio. As always, it is important to discuss your financial goals with a professional, such as Anthony S Casey.

Ranking the World’s Best Real Estate Markets

A study recently published by the Association of Foreign Investors in Real Estate has ranked the most attractive real estate markets in the world for foreign investment. The yearly survey conducted by AFIRE is a polling of principles and senior executives at global real estate investment firms. Members of AFIRE have an estimated $2 trillion in real estate assets.

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The United States is an attractive destination for international real estate investment (photo: Getty Images)

The results for 2014 indicate the broad appeal of properties in the United States. Three of the top six cities ranked were in the United States. New York City is once again number one, having been beaten by London in 2013. San Francisco and Houston are the other US cities on the list.

The United States was ranked the number one country with opportunity for capital appreciation, beating out Spain and the UK in the second and third position, respectively.

Granted, this organization focuses primarily on United States investment. In fact, inbound investment in the US is the common bond between all of it’s members, so take these results with a grain of salt. However, the results of this latest survey do indicate that the economy of the United States is continuing to rebound and offers stable investment opportunities. With the strength of the USD at an 11 year high, many foreign investors are taking notice.