It all depends on the amount of time and the amount of control you'd like to have over a project.

You can not raise the rent higher than the local Rent Control Laws allow. 

Just understand what you can and cannot control being so far away.

Some communities charged different amounts for different reasons and can control more than you think. 

Compared to an IRA, Solo 401k contributions limits are roughly 10 times higher, there is no custodial requirement for the 401k, you can take participant loans, you don't need the additional expense and administration of an LLC to have checkbook control, there is a built in-Roth component, a spouse can participate in the same plan, there are additional tax benefits (UDFI exemption), and the plans are often quicker to setup and cost less money over time especially compared to most IRA LLCs.

We're seeing this happen more and more in non rent control communities throughout SoCal.

Yes, there are risks to investing local, all investments have risk, but at least there you have some control to correct your mistakes and learn hands on from them.As for the CAP example ... yes of course there are more factors that were not covered in the simplified example, some to the advantage of the high CAP market and some to the advantage of the low CAP market ... text books could be written on all those differences, but the point is that a skilled local operator can select a property and investment strategy to make lots of money in either type of market ... just because there is a low CAP rate does not mean your total profits will be lower, just like having a high CAP rate is of no assurance that your profits will be high.

East LA doesn't have rent control. 

As a Mortgagee you don't control the property, so a borrower who might over capitalize an investment may also stick to an unrealistic sale price which prolongs the sale which can eventually cause delinquency and default.  

With 20/20 hindsight regulators and plaintiff's attorneys paint targets on these individuals through rescission rights or other legal techniques-They train sponsors to source money through other active investors which inevitably leads to squabbling and a loss of control.