Real Estate

What real estate ownership actually looks like across direct property, REITs and crowdfunding, how its returns are made, how it's valued, evaluating a specific opportunity, its risks, costs and taxes, and where it fits in a portfolio.

Property, REITs and crowdfunding

Lessons

• Three instruments that happen to share an underlying asset — Owning a building, owning a listed property company and owning a slice of somebody else's deal are not three versions of one investment. They differ in almost everything except the bricks. (10 min)
• Gross yield is not a yield — Rent divided by price is the number every listing quotes and no owner receives. Take the five deductions out and Property P's 8.00% becomes 4.264% - and the two halves of the return turn out to be far less connected than they sound. (12 min)
• No closing bell: comparables, appraisal and the cap rate — Nothing quotes this asset. Its price comes from three negotiated sales that happened months ago, adjusted by somebody's judgement - and from an income lens that is more honest and much less popular. (11 min)
• Appraising one property: the numbers, the condition, the tenant and the exit — Seven checks on one specific building. The two that decide most outcomes - the deduction list and whether the income covers the borrowing - are the two that never appear in a listing. (14 min)
• Leverage runs both ways, the round trip costs six per cent, and selling takes months — A mortgage multiplies the price move by four in either direction. The transaction costs are fifty times a broad fund's. And the exit is measured in months, at a price you negotiate rather than accept. (13 min)
• A real asset with a flattering picture of itself — Property earns its place through contracted income from a physical thing, driven by different forces from a share. But its low measured volatility is partly an artifact of being appraised rather than traded, and that artifact has a size you can compute. (9 min)

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