Why invest in multiple markets?

Question

Hi All,

Just curious about the real benefits (we can get to the difficulties later) in investing in multiple markets. We have properties in various cities by default, but as far as intentional, strategic real estate investment, we have focused entirely on my home market of Jacksonville.

Jacksonville still provides us with the type of investment we seek, but certainly not as awesome or abundant as it was a few years ago. I know the Jax market extremely well, so assuming I study and understand another market sufficiently but still not as well as Jax, is there any point in diversifying? If so, is it more beneficial for the other market to be of a similar type (low cost, cash flowing) just in a different region, or one that offers a different type of potential (like more dynamic appreciation)?

I'll toss out a few thoughts I've had:

1) I get to write off more travel :p 2) I bring other investors with me. So if I can get comfortable, knowledgeable and adept in a new market then that would open up more options for my investor partners as well. 3) We are ever so slightly shielded from some catastrophic event occurring in my primary market.

tl;dr, For those of you who purposely invest in many regions, why do you do it?

Thanks!!

John P. · Answer

As others have stated above I too like the diversification.  I like diversification in geographics, types of property, etc.... So I might have a property in CA that I hope will appreciate, some property in Utah where the market is less volatile, some in Memphis for cash flow, but if FedEx goes bankrupt or moves overseas I don't want all my eggs in the Memphis basket so maybe I buy a few properties in Texas, and I like visiting Vegas so have some properties there for tax deductible trips to sin city!  I could go on. The point is I want my eggs in as many baskets as possible.

Jeff B. · Answer

Think COMPANY TOWN, eg Redmand, WA (Microsoft) & Detroit, MI (auto industry).  When things go bust for the major employer, the whole town gets decimated.

Picking diverse markets for REI is similar to stock market diversification; it spreads the risk.

Must you always have your secondary market out-of-state?  No.  You only need to choose locations where there are multiple industries/business types and no single company is the dominant employer.

The micro version of this would be choosing diverse neighborhoods well separated in the same city(assuming a large geographic area, eg Los Angeles County).

Maxwell Lee · Answer

@Thomas Landenberger Good luck in Jax!! Hope Brexit doesn't tear apart the EU, but if it does you'll be ready :)

@Robert Rayford Solid plan. Makes sense. But that's due to your location...would you suggest that someone like me look to buy somewhere like your home market?

Anyway thanks to everyone for the replies!

Robert Rayford · Answer

@Maxwell Lee, I invest in multiple markets primarily because of the returns, I follow the money. I am here in N.California where the real estate market is among the highest if not the highest in the country. Most properties are sold within 95% of the ARV. A turn key property can go far beyond it's value depending on location of course. With the rents at $2k+ for a 2bd condo in the C class areas, if you didn't buy at the right time the ROI is extremely low for such a high valued property. So why not flock to the out of state areas with a low cost (risk) buy in's with higher ROI's and diversify your portfolio at the same time.

James Wachob · Answer

@John P. Thankfully, FedEx couldn't operate their business oversees or solely in Memphis. They have hubs across the united states with the main hub and world headquarters based in Memphis.

Other major employers include St. Jude Children's Research Hospital - the are building a $1 Billion addition in the heart of downtown Memphis!

International Paper is proud to call Memphis home. Along with AutoZone and others...

If you every make it to town, I'd love to show you around!

Leslie Pappas · Answer

For accredited investors, on the institutional side they can buy into institutional grade $50-125M projects across the country with as little as $100,000. Some of the sponsors in the industry have funds available with properties in multiple markets. Happy to answer any questions you may have. - Leslie

Why invest in multiple markets?

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