Source: 401(K) 2013.

Would you rather own property all over the country or stick to an area you know best? Well, you don't have to pick, because there are REITs for both.

Pick a sector
A good example of the "owning everything" is Federal Realty (FRT). The company owns and operates retail properties across the country, with over 85% of its portfolio in top 20 retail markets. The properties span 13 states and the District of Columbia. And each state has its own sub-markets to consider, as well. For example, in California, Federal Realty has buildings in around a dozen towns and cities.

That said, it's hard to argue with Federal Realty's success. Its 46 years of annual dividend hikes is the longest such streak for a REIT. However, with such a broad portfolio, a geographically diversified REIT like this might be missing out on some interesting niche opportunities.

A focused player
Take Whitestone REIT (WSR -0.60%) as an example of an alternative course. This REIT basically owns properties in just two states, Texas and Arizona (it has one property in Illinois). And within these two states, its 57 properties are really focused in just two markets: the Phoenix area and Houston (it has five properties in Dallas and one in San Antonio.)

So, effectively, Whitestone is a REIT focused on just two submarkets. That allows it to buy "fixer uppers" that bigger REITs might not even look at because of their size, location, or disrepair. However by taking this alternative approach, management is competing for properties with institutional access to financing in markets driven by mom-and-pop type investors.

This gives Whitestone a leg up on the small guy, while at the same time, it's operating under the radar of the big guys. Not a bad profile, particularly since the markets it's focused on have reasonably bright prospects because of population growth. And with an over 8% dividend yield paid monthly, more aggressive income investors might favor it over Federal Realty's comparatively paltry 3% yield.

Even more focus?
If Whitestone isn't enough of a specialist, you might consider looking at Washington REIT (WRE 0.13%). As the name implies, it focuses on the areas surrounding Washington D.C. The oldest REIT in existence, this market focus provided the REIT with solid financial results, and investors with rising dividends, for many years. Unlike Whitestone or Federal Realty, however, Washington REIT's portfolio spans multiple property types.

That said, the company trimmed its dividend in late 2012. That announcement came with news that its CEO was retiring, and that there would be a strategic realignment of the portfolio. Notably, the company was looking to sell the medical office portfolio it had built because additional growth in the space would require investing beyond the D.C. area.

Dividend cuts aren't well received in the REIT space, so the shares have been weak since that decision was revealed. That said, Washington REIT knows the D.C. market better than just about any other player. And it has a long history of reinvesting the proceeds from property sales, so the "redirection" isn't exactly charting a new course. Thus, there could be plenty of growth potential to go along with its roughly 5% dividend yield.

Good or not?
Diversification has its benefits. But so does focusing on just a small number of markets. If you invest in REITs, it's a good idea to look at companies with broad portfolios. But don't forget about smaller fries like Whitstone and Washington REIT that make up for their small size with their deep knowledge of local markets. This pair could easily add some spice to an otherwise diversified REIT portfolio.