Is Your Real Estate Investment Worth The Risk?

Betas - in finance they are everything in the modern economy and trading - I think so anyways for investment making purposes and decisions.

So, why don’t more investors that invest in real estate use betas to size up their real estate investments?

I think that it’s because Rich Dad’s board game Cash Flow doesn’t include betas when making purchases and deal decisions. 

Cash flow is nice and all but is it worth the risk; The deal could blow up in your face - could you make more money elsewhere without the hassle?!

Only astute investors know the answers to those questions. And they use betas in finance to figure it out.

One paper argued the use of betas in real estate as real estate on a national level, in the US, is performing more similarly to stocks and bonds in that you can more use betas for calculating what rate of return you should be getting on your investments when purchasing and holding.

These are the real estate betas for different markets and asset types that can be used for calculating how much of a rate of return you should be getting on your cash when making an investment - otherwise invest in paper assets - or something else!

I encourage you to find your markets and assets and determine whether you are getting the right return for the beta of those assets!

"The paper concludes that the best way of estimating a private market risk premium for real estate in general within the overall capital markets is through the use of the NAREIT Equity Index.” 

This is the performance of property by asset type - like residential. With high end beta of about 1.5 for the riskiest of assets you should expect about a 10% rate of return on your cash.

Do you think that you can beat that rate of return on a consistent basis through investing in real estate or should you invest elsewhere? 

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Birds of a Feather