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How to manage a Real Estate Portfolio effectively

A perfect portfolio depends largely on your goals, your personal and financial situation, and how much risk you can handle. Like many things in life, the idea of a perfect portfolio is highly personal.

What is Portfolio Management?

Portfolio management is the making of decisions about investment mix and policy, matching investments to objectives, asset collection for individuals and institutions, and balancing risk against performance.  Portfolio management is about determining strengths, weaknesses, opportunities and threats in the choice of debt vs equity, domestic vs international, growth vs safety and many other trade offs encountered in the attempt to maximize return at a given appetite for risk. 

Real Estate Portfolios

Diversification is important in real estate investments just as much as in traditional capital market investments.

What is Diversification?

Diversification is a risk management technique that mixes a wide variety of investments within a portfolio.  The rationale behind this technique contends that a portfolio constructed of different kinds of investments will, on average, profit higher returns and pose a lower risk that any individual investment found within the portfolio.

Back to real estate portfolios…

Large investors build portfolios of different types of property and in different real estate markets.  To make the case obvious, you can see why a real estate investor would not want all of his property in an area/locality where flooding and other adverse weather is more likely to cause damage to property, at least not without substantial insurance coverage. 

Portfolio management involves asset allocation and selection informed by experts in property development and maintenance.  However, most of the asset management takes place after the portfolio is chosen.

Rebalancing your portfolio

Rebalancing is an effective portfolio management technique, which allows all investors to keep a tight control around maintaining a diversified exposure. This allows investors to benefit from the less than perfect correlation across all asset classes and, as a consequence, effectively manage the overall market risk taken in portfolios.

However, it is not that simple since often when rebalancing is needed, the markets prove to be challenging. As a result of this, a number of factors (for example, market liquidity) need to be considered in relation to the correct timing of the rebalancing exercise.

Are you struggling to manage your real estate portfolio? Contact us for more information on our real estate courses, our real estate trainers can help and support in your real estate training course.