Performance Measurement for Real Estate Investments
Accurate and reliable real estate valuations are difficult to obtain. As a result, gauging whether a property investment has turned out to be profitable is also not a straightforward process. There are a number of indices that an investor must keep a track of, in order to understand the current situation of their investment and make effective decisions accordingly. This article provides an overview about performance measurement in the real estate sector.
Why Performance Measurement is Difficult ?
Valuation of liquid assets such as stocks and bonds is easy. This is because they have a precise listed price. This price is quoted on an exchange every few seconds and anyone can transact at the quoted prices. However, this is not the case with real estate! Real estate prices are opaque and it takes significant effort and time to unearth both the rental and capital values of real estate. The true value of the particular property is only realized when it is the subject of a transaction.
Since all properties are unique (i.e. not homogenous), there cannot be a standard price in the market that is applicable to all investment units. As such, real estate investors have to look at a variety of measures just to find out whether the value of their investment is doing well! Here are some of the common ways that investors resort to in order to gauge the success or failure of their investments.
Measures to Look At
In case, the investor does not intend to liquidate the property but rather hold it for some more time, the investor can look at some of these measures to understand the performance of his/her investment better.
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