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Hurdle Rates for International Real Estate Investing

Working paper #496
Kenneth T. Rosen and Daniel T. Van Dyke

This paper quantifies global risk factors and calculates hurdle rates across countries with those risk factors. The authors’ approach evaluates an array of variables that may affect hurdle rates of return on real estate; they estimate a two-equation model that attempts to explain both economic and real estate market risk using a subset of these variables. The specific subset of variables used is determined empirically. Using a simulation approach with parameters derived empirically from their model, the authors then calculate hurdle rates of return by country, assuming that variations in the hurdle return due to appreciation are proportional to the variations due to income.

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