Buy and hold in One area or Diversify? Question on strategy

3 Replies

Hi all,

A question on strategy for buy and hold investors. I hear some investors say they like to buy multiple properties very close to each other. The theory being that they offer quality houses and bring up the average quality of that specific area.
I am not that experienced, but I would have thought it would be better to diversify with different areas. That way your properties don't compete with each other, and you can hedge against the potential decline of one area.

What do folk think here?

@Nathan J.  

I struggle with this question often. 

With stocks and bonds, the answer is easy: always diversify. When it comes to a locality, I think it gets much harder.

I would pivot the decision on whether or not you live/have a close connection with the area. As an out of state investor, I have no more personal claim to Memphis than Atlanta. As a result, I would choose to diversify between the two, giving me the best in remote management.

If I lived/worked in Atlanta, that would give me huge incentive to focus heavily there (I would always max out at 80%). My network would be strong, and growing faster. My ability to move quick on deals would be the same way.

That's my two cents, but I'd be eager to hear what others may say. 

Great question.  My plan is to diversify but purchase enough homes in each area that you can get good assistance, if not a little preference, from the management companies.  I believe having 5-6 homes is a good number.  That is usually when I get a discount on property management fees and the managers tend to listen to me a little more.

3 of my homes are within a 1/4 mile of each other with 2 of them next door to each other. They are in a neighborhood that is close to an intown Atlanta city that it one of the most sought after cities. As this area has become very high priced, the areas surrounding it are seeing price increases. I've always believed that you should include appreciation in your strategy. I would never invest in an area, right or wrong, that I didn't believe had room for appreciation. I purchased 2 of the properties from another investor that was sick of landlording and improved on the property for the tenants that wanted to move to that area as opposed to a few that were renting in this appreciating area. So far so good. I guess get back with you on that in 5 years.

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