Diversify Your Real Estate Portfolio Across Multiple Markets

August 19, 2022

Diversification can be a powerful real estate investment strategy. Not only should you consider diversifying your tactics, it’s important to explore new markets.

Complacent real estate investors who stick to one market may be losing out on money-making deals elsewhere. Instead of sticking with one or two comfortable real estate markets, consider diversifying your real estate investments around the country. Here’s why diversification is important in real estate.

Why diversification is important

The old adage, “don’t put all your eggs in one basket,” predates the stock market, crypto, and modern real estate investment. But, it still resonates with building wealth in today’s economy. Diversification is one of the top tips when it comes to investing since it allows you to both take advantage of big upturns in one area, while building steady wealth (and weathering the occasional downturn) in another. It also enables you to take advantage of each asset or strategy’s strengths and hedge its weaknesses with other options. This holds especially true in real estate investing.

For some investors, it’s smart to diversify the cities and states where you’re investing as well as to diversify the types of real estate investments you’re making. Expanding your area of investment often opens up access to investment you’d otherwise be unable to make. This is especially true when market entry points differ dramatically.

Price points

Would-be investors often cite expensive price points as a deterrent from entering real estate. One of the big reasons to diversify your real estate portfolio across markets is to benefit from different price points. There are especially stark contrasts between some markets. Take Santa Monica, California versus Detroit, Michigan. You might be able to buy a whole block in Motor City for what a single-family investment property might cost you in California. However, it’s not as simple as just looking at purchase prices. Investors also need to consider their investment strategy and the returns using that strategy in a given market.

Just because big West Coast areas are making the news for sky-high housing prices, that doesn’t mean they are out of reach or shouldn’t be considered. For example, in more expensive markets (such as California), you’ll find that there are certain real estate strategies that still work in specific areas. The inverse is also true. Some strategies that make plenty of money in a higher priced market may yield less satisfactory results in lower priced ones. You might choose from lesser-known, lower priced neighborhoods near pricier areas, look into buying a condo, buy a property with an ADU (or add one to a property you purchase), or get an off-market deal.

Some investors start in lower price point areas, then use money and equity built up over time to enter higher priced ones. By leveraging the benefits of multiple markets, you can expedite your business’ growth.

Consider investing in strong appreciation markets

Among the strategies for real estate investors is buying into markets with high predicted appreciation. Although appreciation is variable, there are certain areas where you can expect to see more growth than others. For example, up-and-coming areas with strong economies and population growth will likely appreciate faster. In addition, places withdiversified employment options, public transit, quality public schools and things of that nature tend to hold their value.

According to the National Association of Realtors, here are some of the top 10 outperforming U.S. markets:

These metro areas should experience home price appreciation that outpaces other markets in the next three to five years. Keep in mind that these are not the only appreciating markets. These are simply examples of opportunities that exist where investors have a lower price point to entry than California or the Northeast, but with high upside.

Steady income with cash flowing markets

Cash flowing markets abound in the south and midwestern U.S. Areas with opportunities for cash flow tend to have lower price points relative to what they can be rented for. In contrast, cash flow is possible, but generally harder to come by in pricier coastal markets.

Whether you’re just starting out and want to get in at a lower price point or want to build a rental portfolio, it’s important to find cash flowing markets. These provide stable income month-to-month while you’re flipping or betting on rapidly appreciating markets elsewhere. Look for spots with strong local economies, low unemployment rates, and amenities that appeal to workers in today’s work-from-home economy.

Each market offers different buyers and tenants

Even in a single city, the real estate market is not a monolith. Location can come down to a street, a neighborhood, or a side of town. As an investor, you might choose to invest in blue collar or white collar neighborhoods, up-and-coming economies or well-established ones. You might invest near a university, a popular corporate headquarters, or a new park — depending on your real estate strategy. There are plenty of different types of localized economies and some might work for rentals, while others might be just right for flipping. Going micro in your location search can pay off big dividends — and allow you to invest in seemingly more expensive real estate markets.

Off-market deals all in one place

Of course, you can’t be an expert on every real estate market across the U.S., and you can only personally visit so many locations. What today’s real estate investor needs is a tool that gives up-close access to properties across the U.S., allowing you to create a broad portfolio of real estate investments.

Loaded with exclusive off-market deals, Sundae’s Marketplace makes it easy to invest in any of its markets across the country. Invest from at home or on-the-go with interior photos, inspection reports, and plenty of supporting data to help you make investment decisions. Try the Sunday marketplace today and get started on diversifying your real estate portfolio.

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Erin B

Erin Behan is a writer and editor covering real estate investor strategy for Sundae. She's lived in L.A., New York, and Atlanta and currently resides in Portland, Oregon, where she writes and edits for a number of outlets, including WebMD, Farmers Insurance, and Vox Creative. She spends her free time hiking with her two boys, snuggling with her cat, and enjoying the best of the Pacific Northwest.