{"id":68352,"date":"2019-04-02T09:49:26","date_gmt":"2019-04-02T14:49:26","guid":{"rendered":"https:\/\/www.zilculator.com\/blog\/?p=68352"},"modified":"2021-01-24T07:35:21","modified_gmt":"2021-01-24T12:35:21","slug":"double-down-in-market-you-know-or-diversify","status":"publish","type":"post","link":"https:\/\/www.zilculator.com\/blog\/double-down-in-market-you-know-or-diversify\/","title":{"rendered":"Double down in a market you know or diversify?"},"content":{"rendered":"\n<p class=\"has-medium-font-size\"><strong>Question: <em> &#8220;I recently got my first rental property and I plan to get another one soon. Is it better\/smarter to buy another in the market I&#8217;ve done the most research in or try to identify a new market (such as another city or even state) to diversify my portfolio?&#8221;<\/em><\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p>Congratulations on your first\nrental property!<\/p>\n\n\n\n<div id=\"toc_container\" class=\"toc_white no_bullets\"><p class=\"toc_title\">Contents<\/p><ul class=\"toc_list\"><li><a href=\"#Short_answer\"><span class=\"toc_number toc_depth_1\">1<\/span> Short answer: <\/a><\/li><li><a href=\"#Point_One\"><span class=\"toc_number toc_depth_1\">2<\/span> Point One: <\/a><\/li><li><a href=\"#Point_Two\"><span class=\"toc_number toc_depth_1\">3<\/span> Point Two: <\/a><\/li><li><a href=\"#Point_Three\"><span class=\"toc_number toc_depth_1\">4<\/span> Point Three: <\/a><\/li><\/ul><\/div>\n<h2><span id=\"Short_answer\"><strong>Short answer:<\/strong> <\/span><\/h2>\n\n\n\n<p>In most cases, you should stay in your own market, at least for a few more deals.<\/p>\n\n\n\n<p>The one compelling reason to\nexplore other markets is if you\u2019re not able to find acceptable deals in your\nown market. If there aren\u2019t any\/many deals nearby\u2014as is the case in certain\nareas of California and the Northeast\u2014then you don\u2019t have much choice. In that\nsituation, if you want to do deals, you have to look elsewhere. Or try to identify\na different strategy that might work in your area.<\/p>\n\n\n\n<p>But that doesn\u2019t appear to be the case here. The question says that you \u201cgot your first rental property\u201d and implies that there are other acceptable deals nearby. Further, the question asks about the desirability of diversifying a portfolio, not of the necessity to look elsewhere.<\/p>\n\n\n\n<p><strong>Related: <a href=\"https:\/\/www.zilculator.com\/blog\/how-to-prepare-properly-before-buying-your-first-property\/\">How To Prepare Properly Before Buying Your First Property<\/a><\/strong><\/p>\n\n\n\n<p>Note: I\u2019ve referred several times to \u201cacceptable\u201d deals. The definition of \u201cacceptable\u201d will vary with the investor. Usually, it refers to your <a href=\"https:\/\/www.zilculator.com\/blog\/return-on-investment-roi-in-real-estate\/\">return on investment<\/a>. It might also include the location of the property, the ability to find \u201cgood\u201d tenants, the availability of <a href=\"https:\/\/www.zilculator.com\/\">property management<\/a> if you\u2019re not going to manage the properties yourself, and so on. What another investor might find acceptable might not meet your standards, or vice versa.<\/p>\n\n\n\n<p>With that out of the way: <strong>Stay in your own market.<\/strong><\/p>\n\n\n\n<p>Markets vary. Even areas <em>within<\/em> markets vary. I looked at a\nproperty last weekend. It was a small 3 bed\/1 bath house that needed serious updating.\nThe house, about 60 miles from Washington, D.C., would sell to an investor for\nabout $100,000. Fixed up, it\u2019d be worth maybe $250,000. If it were 25 miles\nfrom Washington in one community, the numbers would be closer to\n$225,000\/$400,000. But in another D.C. suburb, only 10 miles from the city, the\nnumbers would be around $130,000\/$300,000.<\/p>\n\n\n\n<p>You need to know your\nmarkets. I\u2019ve gotten \u201cburned\u201d twice on out-of-town properties that seemed to be\ngood deals, but weren\u2019t. And it\u2019s not just that prices and rents will vary.\nIt\u2019s also more difficult to do your \u201cdue diligence\u201d on out-of-town properties. <\/p>\n<!-- WP QUADS Content Ad Plugin v. 2.0.17 -->\n<div class=\"quads-location quads-ad2\" id=\"quads-ad2\" style=\"float:none;margin:0px;\">\n\n <!-- WP QUADS - Quick AdSense Reloaded v.2.0.17 Content AdSense async --> \n\n\n<script type=\"text\/javascript\" >\nvar quads_screen_width = document.body.clientWidth;\nif ( quads_screen_width >= 1140 ) {document.write('<ins class=\"adsbygoogle\" style=\"display:inline-block;width:550px;height:90px;\" data-ad-client=\"pub-3164542121802998\" data-ad-slot=\"4497930067\" ><\/ins>');\r\n            (adsbygoogle = window.adsbygoogle || []).push({});\r\n            }if ( quads_screen_width >= 1024  && quads_screen_width < 1140 ) {document.write('<ins class=\"adsbygoogle\" style=\"display:inline-block;width:550px;height:90px;\" data-ad-client=\"pub-3164542121802998\" data-ad-slot=\"4497930067\" ><\/ins>');\r\n            (adsbygoogle = window.adsbygoogle || []).push({});\r\n            }if ( quads_screen_width >= 768  && quads_screen_width < 1024 ) {document.write('<ins class=\"adsbygoogle\" style=\"display:inline-block;width:550px;height:90px;\" data-ad-client=\"pub-3164542121802998\" data-ad-slot=\"4497930067\" ><\/ins>');\r\n            (adsbygoogle = window.adsbygoogle || []).push({});\r\n            }if ( quads_screen_width < 768 ) {document.write('<ins class=\"adsbygoogle\" style=\"display:inline-block;width:550px;height:90px;\" data-ad-client=\"pub-3164542121802998\" data-ad-slot=\"4497930067\" ><\/ins>');\r\n            (adsbygoogle = window.adsbygoogle || []).push({});\r\n            }\n<\/script>\n\n <!-- end WP QUADS --> \n\n\n<\/div>\n\n\n\n\n<h2><span id=\"Point_One\"><strong>Point One:<\/strong> <\/span><\/h2>\n\n\n\n<p>If you\u2019ve done the most research on your current market and are finding acceptable deals, then stay in that market for a while. Improve your knowledge of the market and your experience in finding and negotiating deals.<\/p>\n\n\n\n<p><strong>Related: <a href=\"https:\/\/www.zilculator.com\/blog\/how-taxes-make-the-poor-poorer-and-the-rich-wealthier\/\">How Taxes Make The Poor Poorer And The Rich Wealthier<\/a><\/strong><\/p>\n\n\n\n<p>The questioner\u2019s objective is to diversity his\/her portfolio. The concept of diversification involves spreading and thereby reducing the risk. If one <a href=\"https:\/\/www.zilculator.com\/blog\/is-buying-real-estate-investment-in-the-beginning-of-a-recession-a-mistake\/\">investment turns bad<\/a>, the others hopefully won\u2019t. And it\u2019s true that different markets, especially over time, will perform differently. Some will do better, some worse. But the question deals with <a href=\"https:\/\/www.zilculator.com\/blog\/are-va-loans-a-good-idea-to-finance-rental-properties\/\"><em>rental<\/em> properties<\/a>. While the value of the property itself may fluctuate substantially, rents tend to be a lot more stable. Even in the real estate meltdown of 2007-2010, when some property values dropped by 50% or more, rents in most places stayed flat or nearly so. If it was a good investment pre-2007\u2014and that\u2019s measured largely by <a href=\"https:\/\/www.zilculator.com\/blog\/return-on-investment-roi-in-real-estate\/\">return on investment<\/a>\u2014it likely remained so during the rough years that followed. <\/p>\n\n\n\n<h2><span id=\"Point_Two\"><strong>Point Two: <\/strong><\/span><\/h2>\n\n\n\n<p>If the property starts off as a good rental investment, it\u2019s likely to remain so.<\/p>\n\n\n\n<p><strong>Related: <a href=\"https:\/\/www.zilculator.com\/blog\/understanding-the-yield-curve\/\">Understanding The Yield Curve<\/a><\/strong><\/p>\n\n\n\n<p>A final comment:\nDiversification doesn\u2019t just mean broadly geographically. As noted above, you\ncan diversify geographically within a market. Or you can diversify based on\ntype of renters: A property near a university probably will attract more students.\nA property near a military base probably will attract more\nmilitary. (Incidentally, while both of those tend to have a lot of turnover,\nthe demand for military and student\nhousing is likely to remain strong.) Or diversify by type of structure (single-family\nhome, townhouse, duplex, triplex, and so on). <\/p>\n\n\n\n<h2><span id=\"Point_Three\"><strong>Point Three:<\/strong> <\/span><\/h2>\n\n\n\n<p>You can diversify within a single geographic market.<\/p>\n\n\n\n<p>Longer term, you may want to\nexplore other geographic areas. But if your area\u2014where you\u2019ve done the research\nalready\u2014has good, investible properties, stay there for the time being. \n","protected":false},"excerpt":{"rendered":"<p>Question: &#8220;I recently got my first rental property and I plan to get another one soon. Is it better\/smarter to buy another in the market I&#8217;ve done the most research&#8230;<\/p>\n","protected":false},"author":4,"featured_media":68776,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[199],"tags":[200,201,189],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v15.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Double down in a market you know or diversify? | Zilculator: Real Estate Investment Analysis blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.zilculator.com\/blog\/double-down-in-market-you-know-or-diversify\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Double down in a market you know or diversify? | Zilculator: Real Estate Investment Analysis blog\" \/>\n<meta property=\"og:description\" content=\"Question: &#8220;I recently got my first rental property and I plan to get another one soon. 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