San Jose Community College

San Jose, Malilipot, Albay

S.Y 2022-2023

Investment
and
Portfolio
Management
 Module 4: Real Estate, and Precious Metals and Stones

Cathy C. Balbin
Instructor

Real Estate
Real estate investing involves the purchase, management and sale or rental of real estate for profit. Someone
who actively or passively invests in real estate is called a real estate entrepreneur or a real estate investor. Some
investors actively develop, improve or renovate properties to make more money from them.

Advantages
#1 Real Estate Can Be Easier to Understand
When you start investing, it can be difficult to understand everything you need to know to make a profit. Many
types of investments rely on abstract concepts and complex algorithms, which are especially difficult to
understand.

Real estate, on the other hand, involves the purchase of physical property and most people are familiar with
real estate to some degree. Investing in real estate can be much easier to understand than complex
investments developed by mathematicians.

#2 Real Estate Is Improvable

After you buy a stock, you hold it for a period of time and hopefully sell it for a profit. The success of the stock
depends on company management and their corporate success, which is out of your control.

In contrast, real estate investments are directly under your control. Though you can’t control demographic and
economic changes, or acts of God, you can control many things relating to the physical property and tenants.
With good management of your overall real estate portfolio, you can tangibly improve the value of your
investment and build wealth.

#3 Real Estate is a Hedge Against Inflation

Real estate is one of the few assets that reacts proportionately to inflation. As inflation goes up, housing values
and rents go up.

Though real estate in general is a good hedge against inflation, rental properties that are re-leased every year
are especially effective, since monthly rents can be adjusted upward in inflationary periods.

For this reason alone, therefore, real estate is one of the best ways to hedge an investment portfolio against
inflation.

#4 Real Estate Properties Exist in an Inefficient Market

Unlike the stock market, the real estate market is full of inefficiencies. There is a lack of transparency relating
to individual property values and also the strength of different markets, which means that real estate
investments have the potential for very high profits.
Real estate investors who do their research, especially with help from industry experts, can find great real
estate bargains.

#5 Real Estate Can Be Financed and Leveraged

Of course, you can technically purchase stocks and other assets using debt, but this can be very risky because
the financing is not to purchase a hard asset. Real estate, on the other hand, is a market where products are
usually bought with debt.

Real estate investments purchased with hard money or a mortgage can be structured in ways that are rather
safe and affordable, so that large purchases can be made with a relatively small initial investment. The result is
the purchase of a hard asset that appreciates year-over-year, and paying for it primarily with other people’s
money.

Disadvantages
#6 Real Estate Has Higher Transaction Costs
When purchasing shares of a stock, the transaction cost for the trade is very low, often just a few dollars. But
when purchasing real estate, the transaction costs are considerably higher.

Unlike other types of investments, real estate transaction costs can significantly affect the value of the
investment and make it more difficult to turn a profit.

#7 Real Estate Has Low Liquidity

Many investments are highly liquid, and can be bought and sold for a profit in a fraction of a second, as with
high-frequency stock trading. But real estate investments are comparably illiquid, because properties can’t be
quickly and easily sold without a substantial loss in value.

Real estate investors must be prepared to own a property for months and years, especially if it will be leased
out.

#8 Real Estate Requires Management and Maintenance

Once an investor purchases a property, it must be rehabbed, maintained, and managed. Financing payments,
real estate taxes, insurance, management fees, and maintenance costs can add up quickly, especially if the
property sits empty for extended periods of time.

#9 Real Estate Markets Have Significant Inefficiencies

As we’ve already discussed above, the market’s inefficiencies can be advantageous to investors. But here we
want to also mention the disadvantages, which can be illustrated by investors purchasing properties sight
unseen at auction.

The most aggressive investors purchase real estate based on minimal information, and don’t know whether
they’ve made a good deal until paying for the property and then inspecting the property. Likewise, investors
with rental property deal with fluctuating demographics and volatile economies, which can either add or take
away from their bottom-line profits.

Real estate investing involves dealing with market inefficiencies, which can be mishandled to result in financial
ruin.

#10 Real Estate Creates Liabilities

Real estate investing involves taking on a great deal of financial and legal liability.

All the disadvantages mentioned above add to the liability a real estate investor takes on when purchasing,
financing, rehabbing, leasing, managing, and maintaining a property. Even though investment properties may
be in a corporation, there are often personal guarantees associated with the business, and the risk of losing the
income and profits generated by the company.

Carrying Costs, Defined

Carrying costs in real estate (also called “holding costs”) are the fees for owning a property. As long as you hold on to
the investment property, you’ll need to pay them. One of the most common carrying costs is a loan.
Say you take out a loan to finance a flip. If it takes you 4 months to sell the home, you’ll need to pay the monthly
payment on the loan while you’re waiting for the sale to come through. This cost also applies in situations like a long-
term investment.

Types Of Carrying Costs

There are different types of carrying costs in real estate. You’ll need to factor each of these into the total costs of your
investment. With long-term investments, these costs will be steady and predictable. If you’re flipping a house, you
should be prepared to take on these costs for the time you hold the property.

Property Taxes
Property taxes vary from location to location. You’ll need to research online or visit the county assessor’s office to
determine the amount in property taxes you’ll be required to pay.

Mortgage Payments
This one’s self-explanatory. If you’ve taken out a mortgage to finance the investment, you’ll need to factor in monthly
payments as a holding cost. The type of loan you take out can greatly affect how much you pay.
A traditional mortgage likely won’t be the best option for you if you’re house-flipping. But if you’re investing in a rental,
you’ll need to search for the right mortgage to meet your goals.
Insurance
Whether you’re looking to resell the property quickly or rent it out, you’ll need to pay property insurance. There are
different types of insurance depending on the situation.
If the property is vacant or unoccupied, you will need to sign up for a special insurance policy. Contrary to what you
may assume, insurance for unoccupied properties is considerably costlier than if the property is occupied. That’s
because there’s a greater risk to insurers if someone’s not on the property.
For rental properties, you will need to sign up for rental property insurance. Costs for this can vary greatly depending
on property and location. For instance, insurance for a three-story building with 12 apartments will cost considerably
more than a single-family, 600-square-foot bungalow.

HOA Fees
Like homeowners, if your property is in an area governed by a homeowners association (HOA), you’ll have to pay
HOA fees. These can vary depending on where you live but they can be expensive and change with little warning. You
also need to be aware of any HOA rules regarding remodeling, maintenance and more.

Utilities
Unless you’re renting and your tenants pay all utilities, you’ll need to keep the water, electricity and/or gas on. If you’re
curious about a property’s utility bills, you can call the utility companies to see if they’ll give you info on the property’s
current bills. You can also request these bills from the seller.
If the property is vacant, you can save money on the utilities by leaving the HVAC off. However, there are instances
where you need to leave it on.
If it’s winter and your area dips below the freezing point, you need your house to be warmer so the water in the pipes
doesn’t freeze. Freezing water in the pipes will cause the pipes to burst. If this is a possibility, set your thermostat to
45 degrees F to create a buffer so this doesn’t happen.
On the opposite end, if your climate is hot and moist, you should keep your AC on, set to 85. Air-conditioning doesn’t
just cool your house – it removes moisture. Leaving the AC on will help prevent mold and mildew growth in humid
climates.

Property Management
This applies only to rental properties. If you’re considering investing in multiple rental properties, don’t live near the
rental property or are unable or uninterested in managing them yourself, you’ll need to hire a property manager.
A property manager will market vacant rental units, vet tenants, collect rent, handle repairs and more. Expect to pay a
property manager 5 – 10% of the monthly rental charge, along with other fees, such as setup fees for new tenants.

Regular Maintenance
Whether you’re renting a property out or flipping it, there will be some maintenance involved. This could be as basic as
lawncare. If your property has extensive landscaping, you may need to hire someone to tend it. On the inside, if
there’s a lot of traffic in common areas, you may need to hire someone to clean those areas.
The longer you possess the property, the more you’ll have to schedule maintenance. Routine work like gutter
cleaning, window washing and more should be done to monitor your property’s condition and avoid bigger problems
down the road.

The Dangers of Carrying Costs

The lack of awareness of how much carrying costs you’ll pay can have a negative impact on property owners. These
costs can fluctuate with seasons, changes in property value and changes in property. If you don’t account for these
carrying costs, they can really eat into your profit.
Before investing, estimate all possible carrying costs and budget for them. If you’re flipping a property, this could look
like being prepared to pay carrying costs for up to 6 months even if you suspect the property will sell sooner. For a
rental property, these costs are ongoing for as long as you hold the property.

Occupancy Rate
The occupancy rate is inversely related to the vacancy rate. The vacancy rate is expressed as the ratio of vacant
units to the total available space. It can be bifurcated into physical and economic.
Occupancy Rate Formula

Mathematically, the physical level is expressed as follows: –

Occupancy Rate = Total Units Rented / Total Available Space or Units

The economic occupancy rate is a metric that analyses potential gross rent collected by the owner. Mathematically it
can be expressed as follows: –

Economic Occupancy Rate = Total Gross Rent Collected / Total Gross Potential Rent

Explanation
The formula for physical occupancy Rate formula can be computed by using the following steps:

 Step 1: Firstly, determine the number of available units to be occupied.

 Step 2: Next, Determine the count of occupied units.
 Step 3: Next, Divide the occupied units by the total available units.

The formula for economic occupancy rate formula can be computed by following the below steps: –

 Step 1: Initially, determine the rent provided by each unit.

 Step 2: Next, determine the sum of the total rent derived from the portfolio.
 Step 3: Next, determine the rent collected from the occupied units and add them up.
 Step 4: Next, Divide the gross rental income collected by the potential gross rent derived from the economic or
accommodation unit.

What Is an Appraisal?
An appraisal is a valuation of property, such as real estate, a business, collectible, or an antique, by the
estimate of an authorized person. The authorized appraiser must have a designation from a regulatory
body governing the jurisdiction of the appraiser. Appraisals are typically used for insurance
and taxation purposes or to determine a possible selling price for an item or property.

KEY TAKEAWAYS

 An appraisal is an assessment of the fair market value of a property, business, antique, or even a
collectible.
  Appraisals are used to estimate the value of items that are infrequently traded, and are unique.
 The authorized appraiser must have a designation from a regulatory body governing the jurisdiction
of the appraiser.
 Appraisals can be done for many reasons such as tax purposes when valuing charitable donations.
 Home appraisals can positively or negatively impact the sale of a house or property.
 Appraisals help banks and other lenders avoid losses on a loan.

Understanding Appraisals
Appraisals are used in many types of transactions, including real estate. If a home valuation, for example,
comes in below the amount of the purchase price, mortgage lenders are likely to decline to fund the deal.
Unless the prospective buyer is willing and able to come up with the difference between the appraised
value and the lender's financing offer, the transaction will not go forward.

The appraiser can use any number of valuation methods to determine the appropriate value of an item or
property, including comparing the current market value of similar properties or objects.

Appraisals are also done for tax purposes when determining the value of charitable donations for itemized
deductions. Deductions can reduce your taxes owed to the IRS by deducting the value of your donation
from your taxable income.1

Appraisals can also be a helpful tool in resolving conflicts between heirs to an estate by establishing the
value of the real estate or personal property to be divided.

Types of Appraisals
Home Appraisals
A home valuation is necessary during the process of buying and selling a home, as well as a refinance of
an existing mortgage. A refinance is when a loan or mortgage is reevaluated and updated to current
interest rates and new terms.

An appraisal determines the home's value to ensure that the price reflects the home's condition, age,
location, and features such as the number of bathrooms. Also, valuations help banks and lenders avoid
loaning more money to the borrower than the house is worth.

In the event of default, when the borrower can't make the payments anymore, the bank uses the appraisal
as a valuation of the home. If the home is in foreclosure, whereby the bank takes possession of the house,
it must be resold to help the lender recoup any losses from making the mortgage loan.

It's important to remember that when a bank lends for a mortgage, it gives the full amount of the home's
value to the seller on the date it's sold. In other words, the bank is out the money and, in return, has a
promise to pay, plus interest, from the borrower. As a result, the valuation is important to the lending
process since it helps the bank avoid losses and protect itself against lending more than it might be able to
recover if the borrower defaults.

Collectibles or Antiques
Professional appraisals can be done for many items, including collectibles, antiques, or grandma's silver.
Ideally, you'll want multiple valuations for an item from an accredited professional. Appraisers might charge
an hourly rate or a flat fee. 

A certified appraiser's valuation will likely be fair and unbiased, whereas the local collectible shop has an
incentive to offer you less for the item. Also, owners can get an idea of an item's value by checking
collectible magazines and online appraisal websites. Most websites charge a small fee, such as $10, to
value an item. Of course, obtaining a value online is done through photos of the item and is not an official
valuation, but it should give you an idea of what it's worth before proceeding. If you decide to pursue an
appraisal, the American Society of Appraisers has thousands of members and is a great place to begin
searching for an accredited professional.2
Appraisals and Insurance
Some types of insurance policies also require appraisals of goods being insured. Homeowners' and renters'
insurance policies protect policyholders against the loss of personal property due to theft or damage. These
blanket policies cover items up to a preset dollar limit. Obtaining an appraisal of the contents of a home
creates an inventory of the owner's property and establishes its value, which helps to ensure a swift
settlement if a claim is filed.

When the value of specific items exceeds a homeowners policy limit, the policyholder may wish to obtain
additional insurance that covers luxury items such as jewelry or collectibles, including art objects and
antiques. Before issuing personal property insurance policies for high-end items, many insurance
underwriters require applicants to have the object appraised. The appraisal creates a record of the item's
existence, along with its description. It also helps establish the item's actual value.

Some insurance contracts include an appraisal clause that specifies the owner agrees to obtain an
appraisal from a mutually agreeable expert in the event of a dispute between the owner and the insurance
company. Neutral appraisals can speed the resolution of a settlement and keep disputes from escalating
into lengthy and expensive lawsuits.

The actual amount you pay for a home appraisal can depend on where the property is located and how
much time is required to complete the appraisal.

Home Appraisal Process and Cost

The home appraisal process typically begins after a buyer makes an offer on a home and that offer is
accepted by the seller. The buyer's mortgage lender or broker may order the appraisal on their behalf,
though the buyer is typically expected to pay for it out of pocket. On average, a home appraisal for a single-
family property runs between $300 and $450 while appraisals for multi-family homes can start at around
$500.3

Once the appraisal is ordered, the appraiser will schedule a time to visit the property. The appraiser will
then conduct a thorough review of the interior and exterior of the home to determine what it's worth. This
may require them to take measurements or photos of the property. Appraisals can take a few minutes to a
few hours to complete, depending on the details of the home and the appraiser's methods.

After visiting the home, the appraiser will use the information they've collected to create a reasonable
estimate for the home's value. At this stage, the appraiser will also look at the values of comparable homes
in the area. Using these comps and what they've learned from visiting the home, the appraiser will prepare
an appraisal report that includes a figure that represents their perceived value of the home.

A copy of this appraisal report is then shared with the buyer and the buyer's mortgage lender. It can take
anywhere from a week to 10 days for the report to be completed. Sellers can also request a copy of the
report.

If a buyer disagrees with the appraisal report, they can request a reconsideration from the lender or opt to
pay for a second appraisal.

How To Improve Your Home's Appraisal Value

The appraisal process is meant to be objective, but appraisers are human. Good curb appeal and clean,
uncluttered rooms send a message of a well-maintained home. And they can be achieved without a great
deal of time or expense. There are some easy ways to quickly improve the appraised value of your home:

 Lean and uncluttered rooms convey the message that a home is well-maintained.
 Minor cosmetic improvements can make a big difference.
 Point out any major improvements you've made to the appraiser, in case they miss them.

On the other hand, you should avoid big expensive improvements just for the sake of increasing your
home's appraisal value. They generally don't pay off.

Make sure you know your rights as well. If you hire the appraiser to determine your home’s value, the
appraisal belongs to you. If you’re refinancing your mortgage and the lender hires the appraiser, the lender
is required to provide you with a copy–possibly for a reasonable fee–of the appraisal and any other home
value estimates.4

If you think the appraiser has the value wrong, first review the written appraisal for errors. Check whether the comps the appraiser chose are
reasonably similar to your home. If you still think the price is incorrect, you can appeal the valuation with your lender or ask it to order a
second appraisal. 

How Much Does a Home Appraisal Cost?

On average, a home appraisal can cost anywhere from $300 to $450.3 The price may be higher for
appraisals of multi-family homes or properties that are above average in size. The buyer is most often
responsible for paying appraisal fees at the time the appraisal is ordered.

Is a Home Appraisal Required?

A home appraisal is almost always a requirement when purchasing a home with a mortgage. Lenders use
the appraisal to determine whether the home is worth the amount of money the buyer is asking to borrow. A
buyer may not require an valuation if they're paying cash for a home versus taking out a mortgage loan.

Can the Buyer Be Present During an Appraisal?

Both buyers and sellers can ask to be present at the home appraisal with the approval of the appraiser. In
lieu of attending themselves, buyers and sellers can request that their agents be allowed to attend the
appraisal. But typically, only the appraiser is present as it's less common for buyers or sellers to show up.

What Happens If the Appraisal Comes in Too Low?

If a home appraisal comes in below what the buyer has agreed to pay, there are several options they could
choose from. The first is to ask the seller to renegotiate the home's price so that it aligns with the home's
appraisal value. The next option is to pay the difference between the appraisal value and the asking price
out of pocket. Buyers could also use a piggyback mortgage to make up the difference between the home's
value and its sales price.

How to Calculate Interest

Before diving into calculations, it's good to know Principal is the amount upon which interest is being
earned. Rate is the interest rate in percent or decimal form and time is the time upon which interest is being
earned. The basic equation you should know is:

Principal X Rate X Time = Interest Amount

For example: $100,000(Principal) X 0.08(8% Rate) X 1 Year (Time) = $8000 Interest

To get the total amount in hand at the end of bearing period, you can use this equation:

Principal X {1 + (Rate X Time)} = Total Amount

In the following calculation, it's for one year, at the end of which, we'll have the original $100,000, plus
interest: $100,000 X {1 + (.08 X 1)} = $100,000 X 1.08 = $108,000

If we were to calculate for three years, we'll multiply the 8 percent rate by three, which gets us 24 percent
or .24: $100,000 X {1 + .24} = $124,000.

Real Estate Investing Math for Profits

The real estate investor is used to seeing the words "due diligence" in their reading and web
research. When considering whether or not to invest in a property, it's good to do your due diligence and
research things like:

 The characteristics of the neighborhood.

  Comparable and competitive properties on the market.
 Competitive rentals in the area and rents being charged, if the property will be a rental property.
 The condition of the property itself.
 The property's expected appreciation rate versus other properties being considered.
 The property's amenities and expected demand from tenants.

It's best to take a long-term approach for most of these, as it is important to be relatively confident that the
local economy or demand will not change dramatically while we own the property.

However, the other part of due diligence, and very important, is the math of property valuation and
investment quality evaluation. The good news is that some of the calculations are easily done with online
calculators, like mortgage payments. On the same sites, you can find home equity calculators, pre-
qualification calculators, and loan comparison calculators. Though these are primarily pointed at consumers,
the mortgage payment calculator is used a lot to compare rental property mortgages for cash flow.

Understanding Precious Metals

In the past, precious metals played a central role in the global economy because many currencies were
either physically minted using precious metals or else backed by them, as in the case of the gold standard.
Today, however, investors purchase precious metals mainly as a financial asset.

As an investment, precious metals are often sought after to diversify portfolios and as a store of value,
particularly as a hedge against inflation and during times of financial uncertainty. For commercial buyers,
precious metals may also be an essential component for products such as jewelry or electronics.

 
Three of the major factors influencing demand for precious metals are concerns over financial stability, fear
of inflation, and the perceived risk of war or other geopolitical upheavals.

The single most popular precious metal for investment purposes is gold, followed by silver. Precious metals
used in industrial processes, meanwhile, include iridium, which is used in specialty alloys, and palladium,
which is used in electronics and chemical applications.

Investing in Precious Metals

Investors who want to add precious metals to their portfolios have several ways of doing so. Those wishing
to hold the metals directly can purchase physical bullion, such as minted coins or bars, and then store them
in a safety deposit box. This method of ownership has the advantage of reducing counterparty risk but also
increases storage and insurance costs.

Other popular methods include buying futures contracts for a particular metal or purchasing shares in
publicly traded companies engaged in the exploration or production of precious metals. Mutual
funds and exchange-traded funds (ETFs) also offer a variety of strategies, including funds backed by
bullion, portfolios of mining companies, and leveraged exposure.

Although they may come with a certain degree of security, there is always some risk that comes with
investing in precious metals. Prices can drop during times of economic certainty, as investors are forced to
liquidate assets to cover margin calls or fulfill other securities requirements.

Similarly, physical assets may be difficult to sell at reasonable prices, particularly during times of
heightened volatility. And of course, precious metals carry the added risk of theft if they are stored at home.

Example of a Precious Metal: Gold

Gold is the most high-profile precious metal, consistently generating lots of attention from the financial
media, as well as market participants. Until 1973, the U.S. currency system was based on the gold
standard.

Several factors account for an increased desire to hoard the shiny yellow metal:
 1. Systemic financial concerns: When banks and money are perceived as unstable and/or political
stability is questionable, gold has often been sought out as a safe store of value. 

2. Inflation: When real rates of return in the equity, bond, or real estate markets are negative or are
perceived to drop in the future, people regularly flock to gold as an asset. 
3. War or political crises: War and political upheaval have always sent people into a gold-hoarding
mode. An entire lifetime's worth of savings can be made portable and stored until it needs to be
traded for foodstuffs, shelter, or safe passage to a less dangerous destination. 

Gold reached a peak inflation-adjusted price of roughly $2,200 in February 1980, before declining to a low
of under $400 in April 2001. In the past 20 years, its price has generally risen, reaching nearly $2,000 in
October 2020 and breaking over $2,000 later that year. Gold price as of June 2022 is around $1,850.

How Many Precious Metals Are There?

There are eight metals that are considered precious. They are gold, silver, platinum, palladium, rhodium,
ruthenium, iridium, and osmium. Of the precious metals that are not gold or silver, platinum is the most
traded.

What Is the Most Precious Metal?

There are two metrics used to determine what is the most precious metal, those being price and rarity. The
most expensive precious metal is rhodium. As of June 2022, rhodium carries a price tag of $14,000 an
ounce. Compare that to around $980 for platinum and around $1,850 for gold.

Gemstones are a real asset with a substantial value. They are not subjected to high volatility like gold, stocks,
or bonds and are perfectly suited as asset protection for value preservation. The supply volume of gemstones
has become much scarcer over the last few years and the worldwide demand has increased significantly.
When investing in particularly rare gemstones, one can benefit from a good performance (= an above-
average return) over a longer period of time.  

Gemstones are rare natural resources of nature. Each gemstone is unique. One can compare the market for
gemstones well with the art market. Every work of art, whether a painting or a sculpture is unique. The
market for gemstones and art is not liquid, like gold or diamonds, with daily reference values of performance.
It takes some knowledge and market access through a suitable partner who has the expertise and the
worldwide network, for the right decision in buying and support in a future sale.  

Of course, there are some things that should be considered when buying gemstones as an investment to
make the right investment decision. If you want to learn more about suitable gemstone investments, read on!

Why invest in gemstones?

You may ask: What kind of investment is this?  

Investing in gemstones is an investment made in a physical asset containing a real value, without the volatility
and high stability of value. Market prices have been moving in only one direction in recent years. Gemstones
as an investment are becoming more and more popular due to their scarcity as a rare natural resource and
the strong increase in market demand.  

Gemstones are an excellent way to diversify the portfolio and reduce risk relative to other investments
because, as a long-term investment, they do not fluctuate as much as gold, stocks, or bonds. The
performance grows over time, the longer the investment horizon the higher the return.  

If you decide that gemstones are right for you, there are several types of gemstones, including of course the
3 classics of colored gemstones: rubies, sapphires, and emeralds.

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Is it worth investing in gemstones?

The average return for all types of low-risk investments (e.g. treasury and corporate bonds, preferred stocks,
gold, real estates) is for a 10 year investment horizon between 2 and 7% (1/2/3). Individual stocks may have had
higher returns in the recent past in line with bearing higher risks. The question is what future market
performance will look like and whether these value increases can be expected to continue.

In comparison, gemstones show a constant and high performance. Depending on the type of gemstone,
annual average price increases of 5-8%(4) have been observed in the market. For ruby 8%(4), sapphire 6%(4),
emerald 5%(4). These figures are based on all qualities and sizes depending on the gemstone. For particularly
fine and rare rubies, sapphires and emeralds due to their quality criteria and origin, double digit increases in
value between 10 to 12% have been seen by market experts in recent years and will continue to be so in the
future.  

If you invest in gemstones with an investment horizon of 10-20 years, this is a good time horizon for an ideal
return. The value of a gemstone depends on its color, size, cut, and clarity. All factors influence the price of
any stone. The rarer and more valuable a gemstone is considered by experts around the world, the higher its
market value today and also its future performance.

In which gemstones should I invest?

The rarity and quality of a gemstone are decisive for its current and also future value. It is no secret that the
'Big 3' - the colored gemstone rubies, sapphires, emeralds as well as colored diamonds are ideal for
investment as loose stone or processed in a piece of jewelry. In addition, there are individual other
gemstones such as the Paraiba tourmaline, alexandrite, or demantoid which due to rarity and popularity
promise constant high price trends.

For natural colored diamonds (yellow, pink, blue, and red) you have to make a very high investment volume
because the market prices are in a different dimension than all other gemstones. The sale is usually possible
only through international auctions, due to the high value.

Less known but still popular gemstones like Paraiba Tourmalines, Alexandrites, or Demantoids show an
attractive performance, but the market volume is rather low, especially on the demand side when reselling for
a smaller circle of collectors.

With the three colored gemstones ruby, sapphire, and emerald one is on the safe side. There is a suitable size
or carat weight for every investment volume and one can be sure that there is a larger number of interested
buyers worldwide, either as a dealer, jeweler, or collector if one is aiming for a resale.

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Which gemstone is the best investment?
From the market point of view buying and selling a ruby, sapphire and emerald are the best asset class. The
same is true for performance. As constantly high global demand meets ever-decreasing supply, this is where
future price trends are almost certain to be at a high level.  

What is important is the quality of the gemstone and the treatment. Untreated gemstones are best suited for
investment. In the case of sapphire and ruby, this implies that they are not heated, as 98-99% of all sapphires
offered on the market are heated, a common and traditional form of treatment that does not require labeling
according to CIBJO. Emeralds are usually oiled and that is why the degree of oiling is critical, the best
emeralds to invest in are those that are not oiled or only slightly soiled.  

Besides the historical value development and the price development to be expected in the future, it is also a
criterion for gemstones, similar to art, that you see the beauty and that you like it. Since an emerald is always
green and a ruby always red, the Sapphire offers a wide variety of colors in all colors of the rainbow, in
addition to the most well-known blue hue, for every individual taste.

What are the price trends in the colored gemstone market for
investment stones?
Looking at the three colored gemstones, the enormous price increase of rubies and emeralds in the last 3-5
years is particularly striking. Especially with rubies from Burma but also Mozambique. Similarly with emeralds
from Colombia. The value development was strong that one must ask oneself, how does it go on? Always
only in one direction, because the worldwide demand for fine qualities is constantly increasing and from the
countries of origin much less supply comes to the world market.

In the case of sapphire, the value development has been observed steadily at a high level in recent years, not
as rapidly as with ruby or emerald recently. For this reason, sapphire currently offers very good opportunities,
as there is still catch-up potential, and you get more carat weight for your investment amount. The market
still expects significant price increases, which international fairs have shown this year, especially sapphires
from Sri Lanka and Burma are currently very sought after. Across all sapphire colors prices are rising, the
classic is of course blue, but also intense pink and violet tones are in demand, in addition to the rarest
sapphire, the Padparadscha sapphire.

What do I need to know before I’m buying a gemstone as an

investment?
First, the quality of the gemstone is crucial. For this, the 4C's help you to estimate the quality. The most
important is the color, but of course, clarity and size are also important factors for the current and future
value.

Gemstones for investment should be untreated. That is, a colored gemstone in natural color, which has not
been heated or treated in any other way. For this reason, certificates from internationally recognized
laboratories are important to ensure this. The origin is becoming increasingly important for gemstones as an
investment. Premium rates are paid in the market for particularly rare deposits.  

It is quite simple, everything that was rare is valuable, everything that is or becomes even rarer, will become
even more valuable.

What investment figure is suitable for gemstones?

The rarer a gemstone is, the higher its market value due to its size, color intensity, and quality.  

When choosing the pathway investing in gemstones, it is recommended to buy one precious expensive
colored gemstone than three gemstones for the same investment amount. This is because the more precious
a gemstone is, the higher market demand it has and also the higher possibility of selling it faster at the desired
price. The rare is always the most in-demand.  

Gemstones are ideal for admixture if you already have other asset classes, such as shares, gold, or even
diamonds. The allocation of an investment figure for gemstones would be subjective to your personal
preference of how you want to diversify your portfolio of investments. Generally speaking, you should invest
at least $10,000 but preferably more than $25,000 in a rare colored gemstone that promises maximum
performance in the market.