Investing in property can help diversify your investment portfolio – whether you’re investing through a collective scheme, or buying an individual property. But evaluating an investment in real estate can be a little trickier than buying a mutual fund.

Most investors start by looking at market prices – comparing the property they are considering buying with other similar properties. That’s good as far as it goes – but it won’t tell you much about the intrinsic value of the investment. For that, you need to look at the numbers.

An investment in property is most easily assessed by looking at the yield - that is, the rental income expressed as a percentage of the price. You can then compare the yield with that on other investments – such as cash or equities. Yield indices are also available from various sources for different types of property (commercial, residential, industrial), so you can compare the properties you are looking at with the market as a whole.

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Typical yields will differ between types of property. For instance offices tend to have lower yields than industrial property. The values of prime property also different from those of secondary properties – prime properties being major blocks in a highly attractive location, such as large town centre offices.

Of course the yield is not the only return on a property. Investors in real estate hope for capital appreciation as well, over time. That’s included in the total return indices. However, since this factors in future movements in the market, total return is not a figure that you can really use to evaluate an investment prospect.

Having assessed the yield, it’s next time to look at qualitative factors that might affect your investment. For instance, what is the quality of the asset? That’s not a question about the design or build quality, as far as the investor’s concerned, but about the reliability of the income.

For instance, you need to look at the quality of the tenant. A Fortune 500 company or major professional firm is obviously higher quality than a small start-up business. You also need to look at the quality of the agreement – what’s the length of tenure? Are there any break clauses? Does the rental agreement make specific provision for rent reviews? (In the UK, many agreements specify upwards-only rent reviews.) Some rentals are set by reference to the turnover of the tenant – particularly in retail property – where again you’ll want to take a view on the quality of that income and the likelihood of it increasing (or, conversely, falling).

If you’re looking at buying shares in a real estate company you won’t be able to see the exact details of all rental agreements, but you should still be able to get a feeling for the quality of the tenants. Companies will often disclose major provisions of their leases to investors, too.

If you’ve bought a property just on the basis that you think the price will go up, you could be on a hiding to nothing – particularly in today’s market. On the other hand, if you’ve done your research properly and have bought a property that has a good yield and high quality covenants, whatever happens to the market overall, you should have an investment that will deliver you value over the long term.