There is a trade-off between the costs and benefits of international diversification. This paper shows that the costs for property investors can be reduced substantially through investments in public real estate companies, which concentrate on their local, domestic market. We compare the performance of 18 international operating property companies over the sample period 1984 through 1995 with the performance of property companies operating on their domestic market. We find that the international companies underperform the domestic companies. We also find this difference is not due to factors such as transaction costs, leverage, and currency. © 2001 Elsevier Science Ltd.