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Posted almost 10 years ago

Fragment Your Portfolio for Fun and Profit

No other an investing authority than Warren Buffett is said to have claimed he would buy a couple million single family residential properties if he could figure out how to manage them. Therein lies the rub. The sheer magnitude of tending to the thousands of tiny and medium-sized duties that go along with landlording does its part in weeding out a certain percentage of the institutional investors.

Jason Hartman’s commandment #17 of successful investing advises us to embrace the fragmentation. There’s money to be made between the cracks, if you want to think of it in those terms. So what does it mean to “embrace fragmentation,” when the rubber meets the road, in real world terms of investing in income properties?

It’s pretty simple. Don’t buy all your properties in the same place, geographically speaking. It makes sense when you think about it, especially once you understand the there is no national housing market that rises and falls as one monolithic unit. Local areas, such as cities like Austin, Indianapolis, or Memphis have their own characteristics and may be independently at any point in either an upswing or downswing when compared to the others.

These means you should never buy all your properties in one area. Diversify! Take advantage of the fragmented market. It’s built in protection in the event one market takes a dive. In the interest of a diverse real estate portfolio Jason also suggests to consider buying properties in groups of three or five, if finances permit.

It’s the same idea we’ve just been talking about. Like paying the mafia, it’s protection for your business. Consider this. You kick off your brand new income property investing undertaking with the purchase of a single family residential in good old Orange County, California, which, by the way, is a hideously bad idea under present market conditions.

But, for the sake of discussion, let’s pretend like the O.C. is prime for real estate investing. What happens when the local market turns around and you’ve only got that one little old property? Here’s what happens. You go to work as a Wal-mart greeter in order to pay the mortgage when you can’t find a renter.

Sound good? We didn’t think so. Embrace the fragmentation! (Image: Flickr | Horia Varlan)

The JasonHartman.com Team
"The Complete Solution for Income Property Investors"


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