Benefits of Long Distance Real Estate Investing (While Living in High Cost Cities)

[Hayley Beckman]

Long distance real estate investing opens up a world of possibilities by allowing investors to tap into markets far beyond their local reach. While living in high cost cities has its own advantages, one of the disadvantages is the high investment cost it takes to enter into real estate investing. With advancements in technology and communication, managing properties remotely has never been easier! Investors can now leverage online platforms for property tours, market analysis, and property management, enabling them to overcome geographical barriers and diversify their portfolios.

One of the key benefits of long distance investing is the ability to access markets with higher potential returns (particularly in the Midwest). Typically speaking, individuals living on either the West Coast or East Coast experience significantly higher home values which makes investing in rental real estate properties more difficult. The cost to value and cash on cash (COC) returns can often be 200-300% higher in the Midwest when compared to your local real estate markets. Investors can strategically target these areas to secure properties at lower prices, benefiting from economic growth and development trends.

Living in a very expensive real estate market (like my Seattle area), long distance real estate investing provides a dynamic path for building a robust and diversified portfolio that I didn’t think was available. The digital age has allowed me to explore new markets, manage properties from afar, and capitalize on undervalued opportunities in the Midwest that might have otherwise been overlooked. For those willing to embrace a broader horizon, long distance investing not only enhances potential returns but also builds a resilient investment strategy with significantly lower cost to entry for real estate investing.

I’d love to hear your thoughts: would you consider long distance real estate investing to seek out greater rates of return and a lower investment cost?

[Allan C.]

I think the bulk of your sentiment is well stated, but you make a very flawed statement. It's better said that you realize higher initial cash flows investing in low cost markets, but your overall returns are not higher. Markets are efficient, period. If you think you can achieve higher returns simply investing in low cost markets it means you don't have basic understanding of investment principles. 

Returns are a function of barrier to entry, effort and risk. The reason why cheap Midwest markets look attractive to the novice investor is because the savvy investor doesn't want to invest in that market. Either the risk or effort is too high, and ultimately the returns are not that attractive. 

it doesn't mean people cannot thrive investing in the Midwest - we have plenty of examples of those who do. But new people looking into those markets need to understand what a risk-adjusted return means. 

FWIW, I've had assets in the Midwest for over 20 years - they do OK. I also have assets in high cost areas - they perform Way better.  

The intent of my reply is to give people realistic expectations. I think Midwest investments will suit most folks on BP better than high COLA investments, but let's not misguide folks to thinking the returns will be better. If the returns are better in Midwest, than institutional investors will be eating it up, which will drive down margin for the retail investor.