It is funny sometimes to get the reactions of investors when they hear me talk about diversification in Memphis real estate because they are not used to hearing those terms come from real estate investing companies. Maybe from professional stock brokers or stodgy old men in black suits discussing the economy in terms most of us would never use. But in truth, diversification in your real estate portfolio is very important and can often mitigate the over all risk you take as an investor.
Some people will argue that you should be buying real estate in as many markets around the country as possible. It is often argued that this reduces your over all risk. I would argue quite the opposite.
Purchasing properties in too many markets can open an investor to potential fraud and the hassle of developing quality relationships in each of those locations. Anyone who says that you can buy from one Turn-Key provider who offers properties in multiple cities, is probably profiting off that advice! No matter what, you are going to have to trust the advice of whomever you partner with and as a rule, I strongly believe in investing with partners that are invested in that EXACT same neighborhood.
I view diversification as an extremely smart way to insulate your portfolio from poor economic news. As a way to protect your investment portfolio, I am a big believer in investing in only THE best location and with a top notch team with proven results and a history of success. That is the real determining factor when choosing to invest in out of area locations. Do I have a partner looking after my best interest.
So with that laid out, diversifying in one particular market is easy if your partner is well versed in the best areas and and the current economic conditions as well as what may be on the horizon. They should be able to diversify you into upper end neighborhoods on the high end of the rental range, blue collar neighborhoods in the middle of the rental range and even neighborhoods that may not be on the radar today, but are located in 'paths of progress'. Knowing which areas are up for urban renewal grants and which areas are of particular interest because of their proximity to jobs or future expansion projects for major employers.
Investing with a company that is well versed on the area can save a lot of time and frustration and absolutely can help to build a portfolio that is well insulated from economic changes. The key, is making sure you have the right partner and that partner understands your goals as a real estate investor.
Chris
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