Jason Hartman brings the 6th and 7th Commandments Of Successful Real Estate Investing in this segment of the series: Thou Shalt Diversify and Thou Shalt Be Area Agnostic.
Thou Shalt Diversify
Recall previous videos with two old perceptively opposing sayings – “don't put your eggs in one basket” and “put all your eggs in one basket, and watch that basket.”
But in real estate, they're not opposing – they're complimentary. You can concentrate on the most historically proven asset class (income property) and diversify by geography, or area. Think of the old saying, “All Real Estate Is Local.”
Jason over-diversified, and hopes to spare you through sharing. He recommends diversifying in at least 3 markets, no more than 5. You don't want it to become unwieldy.
Thou Shalt Be Area Agnostic
Jason posits that you should never get too attached to any one geographical area – you'll get irrationally emotional. He talks about three types of markets: cyclical, linear and hybrid, and provides an example of one of his friends that learned the hard way not to be too attached.
Instead, you want to consider the RV (rent to value) ratio (a more in-depth look at this in a later video). Basically, you'll want to get in the neighborhood of 1% of the property value in rent every month.
You'll want to avoid rationalizing location and affordability: people might always WANT to live at the beach…but can they afford it?
Jason closes with asserting you become a nationwide investor, where you don't get the chance to fall in love with a property (you might not even see it in person). Invest based on numbers and fundamentals rather than emotions.