Should you dispose of your real estate investment and buy mutual funds?

Real estate is a asset-class that has a love-hate relationship with many investors. This means that investors love it and hate at the same time. But advisors mostly hate real estate investments. So, looking at the past performance of real estate as compared to mutual funds, investors are now in a dilemma as to whether to continue with their real estate holdings or to dispose them of and invest in mutual funds?

Whether to continue or even invest afresh in real estate completely depends on one's personal choice. You cannot take it as a blanket scenario applicable to all. Frankly speaking, making a fresh investment in real estate won’t be a good idea, unless you plan to live in it and use it or if your portfolio demands investment in real estate. Remember, you should not restrict yourself from investing in only equity and debt as a major asset class. You must actually diversify your portfolio across various asset classes such as real estate, commodities like gold, etc. Portfolio diversification would help you reduce the overall risk in the long run.

However, the overall allocation to the commodities and real estate should not be more than 10 to 15 per cent of your overall portfolio and that to if you are an moderate to aggressive risk taker and even if your portfolio size is big. You can have real estate in your portfolio, as it may provide you with diversification benefit.

Now the decision of disposing of the real estate investment and investment in mutual funds completely depends upon your financial goals and your risk taking appetite. If your financial goals or risk profile permits you to have real estate for diversification purpose then surely continue holding it or else dispose it of and invest in mutual funds. While doing so you even have to check all the things regarding property such as the place it is located, the trends in the rental income over the period of time, developments happening in that area like infrastructure such as metro, airport nearby, smart city, etc. as these all things will definitely boost the price of the property overtime. You cannot just dispose it of before considering such parameters. However, real estate as an asset class is only useful for portfolio diversification and to generate good returns in the long run equity is the way ahead.