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Diversification – Was Solomon Talking About Real Estate?

We’re not going to try and ascertain the exact thoughts of perhaps the wisest man who ever lived, but we can take King Solomon’s instructions from Ecclesiastes 11:2, where he writes, “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on earth.” Was Solomon the original investment counselor to advise diversification? Reads like it to Jason Hartman and the rest of us at Solomon Success.

So if we accept the idea that diversification in investment holdings is a good and admirable Biblical goal, the next question is whether or not real estate meets that standard. In our humble opinion, the style of income property investing as espoused by Jason is much closer to the Solomon ideal than anything else you’re going to find on this earth, and is certainly much safer and wiser a choice than taking a flying run at the speculator snake pit that Wall Street has become.

How do you diversify real estate holdings?

Believe it or not, it is possible. The secret lies in adhering to one of Jason’s ideas referred to as Area Agnosticism. Don’t let the term’s title put you off. It’s actually quite based in Biblical financial wisdom. Let’s back up a bit. To diversify properly in real estate not only requires that you own more than one property, it also demands that those properties should be located in different geographic areas. As we should know by now, all housing markets are local and respond to local conditions on the ground. This means that owning four properties in Phoenix, Arizona, does not constitute diversification. What you should do is buy a single property in four different markets, say Phoenix, Indianapolis, Dallas, and Atlanta.

This is called being Area Agnostic™, because you don’t allow yourself to fall in love with one particular area just because you happen to either live there or just get a warm, tingly feeling when you think about it. Don’t base your real estate investment decisions on warm, tingly feelings. Be Biblical, but be Area Agnostic™. Go where the best deals are but spread the risk around. Despite the national media’s tendency to refer to the “housing market” as a universal entity that moves in lockstep, nothing could be further from the truth.

Florida can be down while Arizona is up; Missouri up while New York is down; California so far down it can’t be found without digging equipment and a magnifying glass. The point is this. Local markets move in their own cycles and are rarely in the same place at the same time. Protect your property portfolio by spreading ownership out geographically. (Top image: Flickr | Hampton Roads Partnership)

The Solomon Success Team

 

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