An estimated half of the world's wealth is tied up in property. The value of all the world's real estate far exceeds the market capitalisation of all the world's stock markets, futures markets and bond markets.

Vast fortunes have been made and lost in real estate, a substantial proportion of the world's super-rich gained a substantial amount of their wealth through real estate. The May edition of BRW Magazine is traditionally the "BRW Rich 200" issue which is nothing but cover to cover lists and articles about Australia's richest individuals and families. In the 2004 edition, 54 of the top 200 were "primarily involved in property", up from 48 in 2003. Property books and seminars usually put the figure at about 35%.

However, more money has also been lost in bad real estate deals than in any other asset class. The collapse of many banks over the last century can almost invariably be traced to unwise property investment. As much as any other asset class, real estate requires careful research and study in order to make consistent profits.

(I've heard the "35% of the super wealthy got their money with real estate" claim tossed around at property seminars before, but to claim there is anything in common with the way the world's richest got wealthy and what the seminar guys are trying to flog is dishonest. To observe that there are a fair few property tycoons in the top two hundred doesn't mean anything at all for ordinary investors. These are not guys that simply borrowed a lot of money and bought lots of residential, they are big league developers and businessmen, some of them inherited their land, there were a couple of owners of big cattle stations, there were a few who managed and developed major property assets for property trusts and some of them cashed out of the business in which they built their fortune and invested the proceeds into real estate so they could live comfortably for the remainder of their lives on the rent. None of the individuals in the 2004 BRW Rich List for example seemed to be residential investors, though there were a fair few who were involved in large scale development (i.e. they are the guys who build the apartment blocks which are sold at seminars to retail "investors", usually with a pitch about really wealthy people using real estate as their path to wealth). Most of the pros favour commercial real estate anyway. Taken out of context the figures bandied about seem to say a lot more than they really should in the context of personal investment.)

On the other hand, the huge number of properties and types of property available does give those with skill and time for research many opportunities to do very well. Large listed companies have hundreds of eyes scrutinising their every move, however such research is not carried out in the real estate market on particular properties. As a result the real estate market is somewhat more inefficient than stocks leaving golden opportunities there for the taking.

Various types of property (residential, industrial, retail and commercial) provide different returns at different times in the investment cycle, providing a greater range of investments to choose from with different risk and return profiles.

The risk of properties have been artificially reduced by the appraisal based valuation system, what matters most is not the theoretical value of a property, but what it can be sold for in the market. Nevertheless the risks in most property are somewhat less than those experienced in the stock market, though with somewhat lower returns without leverage.

Key factors to include in researching properties include location, physical attributes, legal issues, rental prospects, depreciation write-offs as well as trends in economic, technological, social, consumer preference, political and demographic factors.

The tendency for real estate markets to lag somewhat behind other markets provides, it might be argued, ready evidence to help a property investor time investments.

In terms of tax considerations, property provides far greater opportunities to shelter income than most other investments, most profits are made in capital gains, a tax you do not pay if you do not sell.

The average long term capital return from property is approximately the same as the rate of inflation, though in some particularly well located areas it can be a little higher. If you add rental yields to that (net yields of around 4% to 5%) this does amount to a very respectable return. As with shares, greatest profits are usually to be had in long term investment strategies.

For most people the appeal of real estate is not a rationally considered opinion based on economics, it comes from the solid thunk a building makes when you hit it. The fact that a building is made of solid material and you can visit it often or drive past to have a look at how it is going means a lot to many people.

This is not a particularly sensible viewpoint but rather one based on little more than emotion. Real estate seems easy enough because the idea of a house is so easy to conceptualise, but the day to day running of a real estate portfolio is fraught with more danger than one might imagine. If anything the risks can be argued to be very high indeed because of the enormous numbers of things that can go wrong and the general shonkyness of many real estate industry salesmen.

The reassuring physical presence of a property is enough to catch many people off guard. An investment should not be assessed based on what it sounds like when you whack it with a stick but rather on how much cash it will bring in versus how much it will cost. If I were to make some kind of subjective judgement of which investment carries the most risk - shares or property - I would say they are roughly equally risky, just they are different.

Other false reasoning used by many people is the idea that property is great "because it is the tenant and the taxman that pay for your investment, you don't need to contribute your own money because you can do all of this on borrowed funds". This reasoning is false because the situation is not any different with any other income producing investment.

If you negatively gear into shares and gradually the dividend stream grows so finally you get positive cash flow from this investment is this not the same thing? People argue that real estate is superior to shares because you can borrow more money to buy property than you can buy shares. You need to invest a substantial proportion of your own funds to invest in shares.

Again I dismiss this logic because most people invest in property with a home equity loan. Home equity loans can also purchase shares (or endowment warrants, or gold bullion, or art, or televisions, new cars and holidays in Fiji ... lenders don't usually care what you spend the money on because your house is the security. You can then use the shares or managed funds bought with the home equity loan as collateral for a margin loan. Although loan to value ratios are a little higher with direct property the difference isn't that great in practice - they will lend up to 70% for most blue chip shares and managed funds, property might be up to 90%. Therefore the "other people's money" argument is not at all unique to property, contrary to widely held opinion.

Producing a chart of risk and return is a bit hard because it is hard to produce an aesthetically pleasing chart that compares business models and equity valuations (stock market risk) with vermin, feral tenants, shonky salesmen and tradesmen, real estate cycles and the fashionability of suburbs and borrowing problems as you would get with real estate. The two are different in enough ways that a simple and direct comparison is difficult to carry out.

The real reasons why you should invest in property are as follows:

• Property is a very good inflation hedge over the long term.

• Property tends to produce more income than capital gains so it makes gearing easier to take.

• Property provides an excellent diversification element to a well rounded portfolio, having a lower correlation with Australian stocks than Australian stocks have with global stocks.

• The returns of property (particularly commercial property and the very best residential) can be very good over the long term and are quite close to those of stocks.

• Property is more tax efficient than bonds and cash and so is a more efficient way to diversify a portfolio than the traditional mix of shares and bonds.