You have to consider real estate as part of your portfolio, it will add an element of diversification to the stocks and bonds while at the same time has unique taxation situation that you could take advantage of.

Another question: What is the best way to check a metro economy strength and diversification?

Some of my clients do that for diversification.

Other funds provide investors with diversification across different sponsors, asset types, geographies, etc.

The other thing to consider is that some of us (well, I'll just speak for me personally) use real estate investment as a form of diversification.  

Flippers are only playing on the median purchase curve since they are both buyers and sellers with a value ad in between so their margins are tight, too.I will add this, there are a lot of good things going on in our fair city, job growth, thankfully some job diversification, low unemployment, local investment (MAPS) to improve the livability of the city.

Funds can be a great way of gaining instant diversification.

I created a list of metrics that I use on state level, region level and property level.For the state level I use metrics such as Crime rate, economic growth, population growth , employment diversification and on and on (If you want I can share the full list).The states I've mentioned are starring at the top of the metrics I've mentioned (I realize it might have an impact on the house prices, but it is good enough to start with).WDYT ? 

Fund Diversification: Similar to the way a mutual fund behaves, a real estate fund diversifies the investment across a group of properties instead of a single property.

However, she is on board on a little REI diversification.