Real Estate Diversification – A Contrarian Perspective

This is a good article on diversification for real estate investors from Andre Bueno on Forbes. Andre presents a contrarian perspective on the typical notions of diversification; that real estate investors should diversify across geography, property type, and asset classes. Instead, he suggests becoming an expert in a single market with deep knowledge on a specific type of property, rather than trying to be in all markets at once. His reasoning is that you can’t beat the local experts who have deep ties to the community, familiarity with the building stock, and insight into the regional market dynamics. He makes a pretty good argument and suggests three steps to becoming a local expert:

  1. Pick your product – Limit your scope: decide what type of property you want to focus on, do your research, and get familiar with it.
  2. Pick your region – Focus on growth: jobs, income, and population; get to know the economic indicators of a region and let the numbers guide you, then dig in on the political influences driving changes in the region.
  3. Pick your goals – Identify what success means to you and chart your path with milestones.

There’s a lot to be said for leveraging your local connections and building a team that is focused on a particular market. This is one of the criteria we use when selecting our partners. They must exhibit a strong understanding of the regional market, have a compelling story for investing there, and a relentless focus on building expertise in a local team.

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