At the highest level, I agree with the premise of this tweet from The Real Estate God. The overarching argument is that one’s main criteria for selecting a real estate market in which to enter should be “the place with the least competition.” And the reason for this is that less competition equals less price discovery, which then equals more mispriced assets and more opportunities to generate outsized returns.

Going even further, the argument here is that you’re actually taking on less risk by buying mispriced assets in less competitive markets because you can model reality (things like in-place cash flows and market rents) as opposed to betting on the future (things like rental growth and/or cap rate compression). Said in a different way, it’s easier to find deals and “make money on the buy”; and, once again, I would mostly agree with this.

But in my mind there’s a very important caveat. And it’s akin to the advice that the late Charlie Munger supposedly gave to Warren Buffet: “Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.” While it is true that you might find wonderful pricing in less competitive markets, there remains the question of whether you’re also buying wonderful real estate.

And I think that’s an important consideration.