Geographic Property Diversification

[Pete Harper]

I need some help with a strategic question. As you grow your rental portfolio at what point do you look for geographic diversification?

We are in our third year of growing our real estate rental business in central Texas. Our strategy is buy and hold for cash flow. Appreciation is a secondary consideration. From the beginning I have tried to diversify the location of our purchases so as not to become too dependent on any one local economy. We have six properties with a total 28 doors spread over three different markets. We have been doing our own renovations/maintenance so we try to stay within a 2hr radius of home.

That being said, our last three properties have been in a very small local market. Looking on the county tax records we are the #4 ranked landlord in the county. I have the opportunity to buy out the #3 guy making us #2, gulp. From a cash flow standpoint this market can’t be beat. We are buying solid 1-1.5% deals adding value through light renovations pushing towards 2%. Local demand for apartments is super high, just yesterday I had three people calling on a 1BR unit and I wasn’t even advertising.

My question is am I getting over exposed in this tiny market? The local economy is depressed. The largest local employer closed 4 years ago. My current tenants are working class folks; waitress, cashier at gas station, local cop.... target income is only $2100/month for 2BR; $1600/month fir 1BR.