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How to get property exposure without buying a property

For several years property investors proudly boasted of the strong returns that the asset class was generating. Not so much these days.

However, I can understand why many people still think that they need to diversify their investments to include an investment property. I don’t think that’s necessary.

For me, diversification is simply making sure that all your assets aren’t exposed to the same risks. It doesn’t mean you have to buy telco shares, resource shares or property simply because you don’t have any in your portfolio.

However, there are a number of different ways to profit from property without having to actually own an investment property if you want property exposure.

REA Group Limited (ASX: REA) and Domain Holdings Australia Limited (ASX: DHG) operate Australia’s two most popular property portal sites, realestate.com.au and domain.com.au. These two are continually improving the offering for house sellers, meaning they can charge more per ad. The profits of REA Group and Domain aren’t necessarily linked to the movement of house prices.

There are also a number of businesses that sell products that are integrally linked with either property construction or renovation. Property owners would likely use one of DuluxGroup Limited’s (ASX: DLX) brands like Dulux, British Paints, Sellys, Cabot’s, Yates, Hortico, Parchem, b&d and Lincoln Sentry in some way for their property.

Any bathroom or plumbing work is likely to involve Reece Ltd (ASX: REH). Don’t forget, it also works with civil works pipes and also irrigation.

Every house needs lighting, so Beacon Lighting Group Ltd (ASX: BLX) could be one to brighten your portfolio.

There are other house-related shares such as Nick Scali Limited (ASX: NCK) which are more likely affected to be hurt if consumer spending decreases, so it may be better to avoid it and ones like JB Hi-Fi Limited (ASX: JBH) for now.

Foolish takeaway

For now, I’m keeping a cautious eye on property shares. Although their earnings may not fall, sentiment could drop because of their affiliation with the property market.

At the current prices DuluxGroup would be my choice for the next 12 months. REA Group’s valuation is quite high at 33x FY19’s estimated earnings, but over the longer-term its overseas investments could continue to drive profit higher and make it the best one mentioned in this artile.

If house prices do keep falling then this top ASX share is likely to be one to actually profit from that change.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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