While you may think of investment diversity as referring to a variety of kinds of investments, Jason Hartman has a slightly different definition of the word. No, he’s not recommending you gather a variety of assets (stocks, bonds, mutual funds) but instead add diversity to your portfolio and reduce your investment risk by investing in different real estate markets.

Because real estate is a local investment, it is best purchased across a variety of geographic areas. Diversify by purchasing income properties—a historically proven asset class.

You’ve got a lot of areas to choose from just within the United States. Around 400 unique markets exist in this country, and each comprises its own housing market. Remember, real estate markets operate locally, which means there is nothing as simple as a universal “housing market”—Boston is different from Austin is different from Chicago.

Though stocks are a risky investment and we don’t advise purchasing them, you’d be hard pressed to find an investor who is willing to sink every dollar into one particular company. Similarly, you won’t find a savvy real estate investor with properties all in the same market. Think of it as an insurance policy of sorts.

While milk and ice cream are in the same realm of products and share a number of commonalities, you likely wouldn’t purchase them from the same location—milk rests on one end of the store with other cooled goods, while ice cream rests among the frozen goods. They’re better off that way, even if acquiring both can be more challenging. Keeping the milk on one end and the ice cream on the other is ultimately safer.

So, embrace the “buy local” movement and think of real estate as a logical extension of this. Buy in markets that have proven themselves (no matter what the media tells you is happening in the so-called national market) and buy in multiple markets. Learn about an area, learn Jason Hartman’s other commandments, and learn to make money in a diverse marketplace. (photo credit: paulswansen via photopin cc)

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