In a perfect world we would all investment in property, the value would go up each year and everybody would live happily ever after. Unfortunately, the real world is very different to the one we would all like to live in and while there are many different ways to track the performance of your property portfolio, relative performance is the only true indicator.
Tracking performance against your core market
Over the last few years we have seen a significant divergence in property market performance with for example the London market going from strength to strength while other areas of Europe such as Spain and Portugal are struggling. This perfectly illustrates why relative performance against a base market is the only way to really track your performance.
There will be occasions where the value your property portfolio has increased but has actually underperformed the overall market. Alternatively there will be times when the value of your assets has fallen over the year but it has not fallen by as much as the main market itself which is in reality an outperformance. These may seem bizarre situations but if for example a market has fallen by 10% over a 12 month period then it is highly unlikely that you will have outperformed to such a level that the value of your property has gone up.
Is it sensible to set targets?
This is an area which many people seem to ignore, setting themselves targets for annual performance because without targets what are you aiming for? Whether you set yourself ambitious targets or easily achievable targets is down to personal preference but many successful property investors tend to aim somewhere in between. If you set a target which is blatantly unachievable then you will always feel as if you have failed making it difficult to build a positive mental attitude going forward.
On the flipside, if you set a target which is easily achievable year-on-year then what is the challenge to push yourself?
Long-term performance
While markets will fluctuate in the short to medium term the long-term trend in the worldwide real estate market has been positive for some time. This is where you can set yourself average annual performance targets over a prolonged period while monitoring short-term performance. In reality there will be times when you will miss your average target on an annual basis but hit your long-term goal. Remember that a long-term increase in the value your assets in excess of inflation is actually a rise in real terms. Ultimately, this is what you are aiming for.
Using a benchmark
Many people will also use a non-property benchmark to compare and contrast the performance of their real estate assets. This may be the stock market, the savings rate less the rate of inflation (the real return) or some other indicator. History shows us that real estate and stock markets have performed well in the longer term although both investment arenas have, and will continue to, seen their fair share of short to medium term volatility.