Property portfolio

From CEOpedia | Management online

Property portfolio - is a set of assets that requires various analyzes that will allow the investor to return metrics and price their risk. These results can be used to make financial decisions[1]. According to Margaret Lomas , Maintaining portfolio and ensuring its effectiveness over time is a skill every investor must learn"[2]. There are many important things to understand before starting and maintaining a property portfolio. The first step is to understand the differences in real estate cash flows. There are tools thanks to which the investment will fully use its potential regardless of personal finances and economic situation. The investor must be able to analyze, challenge and adapt the portfolio[3].

Development of the property portfolio

All that an experienced investor must know about developing a property portfolio is that it is a serious business that requires a proper approach to property management. Independent property management is not easy. There are two options. The investor can do it himself or have a qualified property manager. Both ways are good, however, if you don't have enough experience, the results will not be satisfactory. In this case, to build a property portfolio that will bring millions of profits, you need to hire a specialist. Hiring an agent costs money. They charge 7 to 8% of the rent for property management[4].

Risk of property portfolio

According to Thomas M. Springer and Ping Cheng, the Real Estate Investment Trust (REIT) provides a method for testing risk prices associated with real estate portfolios. The risk factors for the property portfolio are[5]:

  • degree of diversification
  • portfolio obsolescence
  • projected demographic trends at the real estate level

The factors listed above help determine the risk. It is important to know that it does not work the same way for all types of property[6]. Real Estate Investment Trust offers a comfortable way to study real estate portfolios for investors who want to own them. The market may use REITs for return metrics and for price their risk. REIT risk using the market model can be divided into systemic risk and company-specific risk[7].

Choice of diversification strategies

Focusing on the real estate market in Nigeria, many analyzes have been made. They concerned factors influencing the selection of the property portfolio diversification strategy, i.e. the nature of the real estate market and the perception of qualitative factors. The analysis showed that the market in Nigeria was an "emerging" market. Unfortunately, time series were missing. The study found six significant factors influencing the selection of a diversification strategy. They result from the nature of the property market. These are[8]:

  • The investors' overall expectation of the benefits of diversification scheme
  • The need to reduce management operating cost
  • Management convenience
  • Operating environment
  • Market players' education
  • Knowledge of alternative diversification technique

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  1. Springer T.M., Cheng P. (2006)
  2. Lomas M. (2012)
  3. Lomas M. (2012)
  4. Yeardney M. (2019)
  5. Springer T.M., Cheng P
  6. Springer T.M., Cheng P.
  7. Springer T.M., Cheng P. (2006)
  8. Olaleye A. (2008)

Author: Agnieszka Kurbiel