Diversifying in multiple OOS markets or invest in only one area?

Question

Hello BP community

I’m new to BP’s! This past week I have learned a wealth of knowledge from all of you, I’ve spent countless late night hours reading numerous discussions, investing strategies and tips.

A little bit about my situation, I live in the Los Angeles area, I have a couple of investment properties that initially were primary residences. I’m selling one of them next month which I’m projected to net anywhere from 180K-200K. I want to start investing OOS and have my eye on Kansas City, MO , Indianapolis, and Columbus. I’m thinking of flying to all 3 cities fairly soon to get familiar with the area. My investment strategy is “buy & hold” in hopes to produce a nice amount of cash flow. My question to you all is do most of you invest in one market? Or you diversify your portfolio into different markets? What are the pros and cons to both and which one might work out best? Ideally I would like a buy SFR’s or multi-family units, but I’m stuck if I should focus on one market or diversity my portfolio into all three areas.

Thank you!

Andrew Weiner · Answer

Hi @Julio Silva,

If you are in Ohio you should check out Cleveland.  The properties here have a lower entry price point than some other markets and produce good cash flow.  There are parts of town to avoid but several of the suburbs have very strong rental markets.

Nick Giulioni · Answer

I would personally get 5-10 in one market and then diversify. There are benefits to volume.

Julio Silva · Answer

Thanks for the heads up Mark! I'm excluded from capital gains since it was a primary 2 out of the last 5 years. Thank you for sharing !

Filipe Pereira · Answer

@Julio SilvaI would not be overly concerned about buying too many units in one market until you are buying hundreds of units. The reality of the matter is that macroeconomics do not affect the small landlord nearly as much as microeconomics. Therefore, as long as you have a great team in place, I would spend more time hunting for deals in that area rather than trying to find new areas, develop a new team, Etc.

In a sense it is sort of like the stock market. You really only feel the need to diversify once you have too much in one stock. In this case your stock is the market you're considering. If you feel over invested in that market, start to explore others. That being said though, half the battle with out-of-state investing is having a good team. So if you have a good team, stay in one place as long as you can.

Brandon Goldsmith · Answer

I would figure out what your goals are for how much cash flow and appreciation you are looking for. Since you are doing a buy and hold strategy the overall location would most likely matter more from the start. I would suggest taking a look at the population and job growth of the different cities. Industry diversity is also another important factor that can be a good indicator for the stability of a market. @Julio Silva

Carlos Paz · Answer

Hello @Julio Silva I’ll be happy to share some insights about the Charlotte Market and surrounding cities and to learn more about your investment strategies and your goals.

Just sent you a PM to connect.

Mark H. Porter · Answer

Make sure you do your homework in 1031’s now, before you get any further!

I live in Vermont and invest here and South Carolina.  I’m also looking now at investments in North Carolina and Georgia.  No issues at all with me being away as long as you have the infrastructure in place of a handyman/plumber/heating person.

Diversifying in multiple OOS markets or invest in only one area?

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