How to use for Modern Portfolio Theory in property investment.
Reason of use for the Modern Theory Portfolio in Property Investment.
Problems and disadvantages when using this Theory.
2006-10-13 21:22:33 · 4 answers · asked by tianhaolai 1 in Business & Finance ➔ Investing
You can give me the sources to let me know more about it.
2006-10-13 22:08:42 · update #1
Without going into a lot of the theory, basically you can reduce your specific risk and increase your expected return by carrying a portfolio of properties with different levels of risk that have low corrolations.
For example you might own one property, a 20 unit apartment building in Anderson, In. The Delphi plant closes, 10,000 employess are laid off, and all of a sudden you apartments have an 80% vacancy rate. Very high risk.
But if you own 10 properties, only one of which is a 20 unit apartment building in Aderson, In., and the others are include say a 640 acres soy bean farm in Illinois, a shopping mall in Miami, Fl., a building of doctors offices in Columbus, Oh., and 30 lake front lots in North Carolina, your specific risk is reduced and your overall portfolio return will increase.
I do not know of any disadvantages other than it is all based on probabilities and the price that you pay for a property should be based on the return you expect and the risk associated with receiving that return. If you do not know the risk and expected return, you do not know the appropriate value of the property and the theory is not going to do you much good.
2006-10-14 03:01:41 · answer #1 · answered by Anonymous · 0⤊ 0⤋
The idea of MPT, or portfolio optimization, is to get maximum return for minimum risk. In other words getting the maximum return for the level of risk you are taking. Its also called mean variance optimization The investments that meet this criteria are on the Efficient Frontier.
2016-03-28 08:37:38 · answer #2 · answered by ? 4 · 0⤊ 0⤋
You can't use modern portfolio to invest just in real estate. Modern portfolio theory can help you figure out what your allocations to different asset classes (stocks, bonds, cash, etc.) should be. As to what to invest in within a class, modern portfolio theory suggests indexing...
2006-10-14 05:14:38 · answer #3 · answered by NC 7 · 0⤊ 0⤋
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2006-10-14 02:37:31 · answer #4 · answered by stock.geek 2 · 0⤊ 0⤋