My economist brain and my finance-trained brain are duking it out.

My economist brain wants me to accumulate several triplexes and quads in one city to enjoy geographic economies of scale. If I did this, I could hire a property manager to oversee all the properties since theyd be close to each other. I could live elsewhere and visit all my properties in one trip. I could establish a good rapport with a local lender. I could get to know the local economy and rental market intimately.

My finance brain wants me to diversify, diversify, diversify! Different cities! Different types of properties! Different exposures to risks! Oh, the possibilities! I could spread my risk between residential renters and commercial lessees. I could hold properties in the Bay Area, Seattle and Boston. I could make tax-incentivized decisions to buy in states with favorable tax laws.

Both of my brains are absolutely correct. And if I was managing a large portfolio Id be able to satisfy the advice of both ways of thinking: I could diversify across several cities and property types and create economies of scale within them. This is what any good investment fund would do.

But most people who are just getting started in real estate investment dont have that luxury. Weve got our first property, probably one that were living in, which means were close to our jobs and/or families. It may take us years to save enough money to close a deal again. Our next deal will be mutually exclusive:

1. Well either begin to build a geographic economy of scale by purchasing another property nearby. OR

2. Well begin to build geographic diversification by purchasing another property elsewhere .

Here or there. Economy of scale or diversification. Of course, the simple act of adding a second property (even if nearby) is in itself a tiny diversification because youre expanding your pool of renters from a handful to two fistfuls. Thats great, but for diversification nuts like myself, this may not be enough for your liking.

So, as I contemplate the next couple years and what/where my second purchase should be, Im running myself down a rabbit hole trying to decide: here. or there. Since I plan to focus my financial energy on paying off some of my student debt, I dont think Ill have to tackle this dilemma for awhile. But still, it bugs me!

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Whats your next move going to be: here or there? Are you more interested in economy of scale or diversification? What would you do in my situation? What have I overlooked on this topic?

I want to hear from you! If you have any questions, corrections or feedback feel free to chime in using the comments section below. You can also send an e-mail to: e@RentTheOthers.com.