For investors looking to diversify their portfolios, residential real estate stocks, such as homebuilders, are one solution.

“Diversification allows you to control risk,” said John F. Osbon, the founder and CIO of Osbon Capital Management. “Real estate’s valuable function is that it’s a hybrid. It has both bond and equity characteristics, and does not move in tandem with other markets necessarily.”

Osbon provides three key metrics to consider when investing in residential real estate.

• Replacement cost versus Price.
• Cost of capital for homebuilders versus price.
• Rent-to-Own Ratio

“If you are looking for a high-return potential investment, I would have to say homebuilders are right near the top,” Osbon said. “If I were a speculator, I would say they are a great buy right now for a couple of very strong demographic reasons.”

This entry was posted on Thursday, July 29th, 2010 at 2:10 pm and is filed under General Investing. You can follow any responses to this entry through the RSS 2.0 feed.