About THE real estate portfolio investments. part 1
This paper describes the results of the previous research, independently conducted by the authors. Those include: the method of real estate portfolio creation based on the investment appeal criterion; the financial asset pricing model (adapted to the real estate market); the dynamic model of the real estate market which serves as an environment model for the simulation of economic processes. The advantage of the developed method of real estate portfolio creation was the fact that the model focused both on revenue and on the portfolio’s value increase, since an applicable profitability index was used as a measure of real estate profitability. The profitability index showed the increase in profitability (with regard to monetary and non-monetary profits) when investing in real estate, compared to risk-free alternatives. However, that method assumed a linear trend in real estate prices (it meant that the prices would change at the same rate in the future as they had done in the past). In practice, this assumption is often wrong, so in this paper, the authors suggest a non-linear model of market growth. Having analyzed the existing works on the subject, the authors have noticed that many modern researchers have been using the median instead of the mean when assessing variance and calculating risks on the grounds that the median works well both with Gaussian and non-Gaussian distribution. In reality, investment markets are often characterized by skew and fat tails. Thus, the paper shows four possible approaches to the creation of a real estate investment portfolio; each approach is due to be analyzed.