Understanding Real Estate Understanding Real Estate

U.S. Housing as an Asset Class
Direct investment t limited it to buying/selling individual id houses.
“Brick & mortar” exposure entails:
• Significant transaction friction
- 5-6% real estate broker commission
- 1-3% 1 other closing costs
- Abundant paperwork, processes, and emotional involvement
• Large carrying costs
- Mortgage interest
t
- Property taxes, insurance, and maintenance
- Property management
• Very limited liquidity and no efficient means to hedge
• Difficulty in achieving portfolio scale and diversification
1 Source: Bankrate, Inc. 2006 Closing Costs Survey
U.S. Housing: 21 st Century Alternatives for Investment and Risk Management
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