If you want to get rich, you should focus on trends. I believe the biggest long-term trend is investing in the heartland of America due to growth of technology and remote work. People want to live in a lower-cost area of the country that is less dense.
Making a small fortune is really fun. You can do so more easily if you can correctly predict a trend. Not only will you earn a much higher return on your investment, you’ll also suffer less anxiety and grief.
Investing in the heartland of America is going to be a multi-decade-long trend. Thirty years from now, I’m confident investors in heartland real estate will do very well. Before digging deep into the subject, let me share some other trends I’ve invested in to show the importance of long-term investing.
What’s amazing is that when I first wrote this post in 2016, not too many people were talking about investing in middle-America. Post-pandemic, investing in rental properties in the Sunbelt through a real estate investing platform like Fundrise is all the rage!
The Investment Trends I’ve Ridden
In 1997, I studied abroad in China for six months. There I realized its economy was on the verge of explosive growth. So I minored in Mandarin and joined the Asian Equities department at a major investment bank. It was my way to ride the opening up of the Asian region.
I was probably the dumbest donkey in the industry. However, being Asian, knowing how to speak Mandarin, and having the good sense to hustle for 13 years was good enough for me to retire at the age of 34.
By 2001, after the dotcom bubble burst, it was clear the public’s love affair with the stock market was over. So I shifted the majority of my wealth from stocks to real estate. San Francisco property prices ended up soaring while stocks languished for a decade.
During the financial crisis, I realized it was now or never to start a website to at least try and take advantage of web 2.0. I had no plan. All I knew was my happy days were numbered due to a structural decline in the banking industry. Increased regulation and narrowing spreads made work less fun.
12 years later, Financial Samurai is now an established brand in the personal finance space that’s generating much more than I ever made in investment banking with 80% less work.
What’s The Next Investing Trend? Buying Heartland Real Estate
In my opinion, the current long-term money-making trend is investing in the heartland of America through real estate crowdfunding. Real estate crowdfunding is private real estate syndication deals offered to both accredited and unaccredited investors alike.
To escape high prices in the coastal cities, people — often younger and with lower- or middle-class incomes — are looking toward the Inland Empire and nearby states for additional square footage and a lower mortgage payment.
The global pandemic has accelerated the work-from-home and geoarbitrage trend to save money. Personally, I for one would love to have a bigger backyard and more space for my kids to roam around.
Further, companies are also moving towards the heartland because it’s becoming cost prohibitive to pay their employees hundreds of thousands of dollars a year so they can rent two bedroom apartments for $4,500 a month. Working from home has allowed millions of people to realize its full-potential. There’s really no going back now.
With technology enabling geoarbitrage, investing in the heartland of America is a wise long-term opportunity.
Investing In Heartland Real Estate
Power is ephemeral, which is why in order to promote government harmony, the Hatch Act of 1939 restricts the political activities of Federal employees. Basically, the Act says: Don’t bring your politics to the office.
While the private sector operates without a similar Hatch Act restriction, common sense says it’s still better not to go crazy if your boss has a different political point of view.
The uncertainty of power is why large corporations donate to both political parties every year. They are hedging their bets. Money curries favor from politicians who need money to win and stay in power.
Even if you donated $1,000,000 to Hillary, you’re not screwed if you also donated $1,000,000 to Ivanka’s charity of choice. Donald should still be willing to take your phone call. Now it’s Biden and Harris’ turn to rule.
Who Else Wins Or Loses?
To be good historians, let’s take a look at the 2016 election results from a macro level.
The below chart is the final electoral college tally. As you can see from the map, the relative losers are California, Oregon, Washington, Nevada, Colorado, New Mexico, Minnesota, Illinois, New Hampshire, Vermont, New York, Maine, Massachusetts, Rhode Island, Connecticut, New Jersey, Delaware, Maryland, Washington D.C. and Hawaii.
The winners are obviously those states in red.
County-Level Results
Now let’s drill down to the election results by county. Not every county in every losing state voted for Hillary. For example, just eyeball California on the map below and you will see the state is pretty divided. But given we have a winner take all system, Hillary was able to gain all 55 of California’s electoral votes.
The real shock from the county-level results is how much of a landslide it was for Trump. If you were just listening to the mass media, you would have been lead to believe the outcome was much more balanced.
But as we know, the mass media and firms like Facebook and Twitter lean left. Therefore, you’ve got to constantly be aware of potential bias and think for yourself.
Know Your Demographics
You might now be wondering, how can there be such a county-level landslide victory for Trump when Hillary won the popular vote by close to 2.9 million? The answer simply lies in demographics.
About half of the U.S. population lives in the blue areas seen below. The other half of the population lives in the gray areas. Folks in the blue areas underestimated the desire of folks living in the gray areas to want something other than a career politician.
With globalization, a lot of people living in the gray areas have not been able to take advantage of the economic boom. Making money in real estate is all about understanding and properly forecasting demographic trends.
Trump’s victory in 2016 shows the strength of the heartland that will only grow in size and value. Since 2016, there has been a real shift towards entrepreneurs setting up businesses in the heartland and employees moving to the heartland for a better quality of life.
The country continues to be divided in 2022+. And there continues to be migration to lower-cost Sunbelt states thanks to the pandemic.
Investing In Heartland Real Estate 2023+
The question now is: what happens to heartland real estate now that Joe Biden is President? The economy is recovering quickly post pandemic, which is fantastic. People are coming back to the big cities, which is why I’m still long San Francisco real estate and looking at NYC real estate.
However, there is still a tremendous desire for people to live and work in lower-cost areas because they now can. Once the genie escapes from the bottle, there’s no putting her back!
The global pandemic has enabled tens of millions of Americans to work from home. Working from home is now normalized. With COVID variants and video conferencing, it seems clear the “spreading out of America” will continue.
Further, President Biden plans to raise the capital gains tax to 43.4%, the highest marginal income tax rate to 39.6%, and get rid of the step-up basis. As a result, roughly 0.7% of Americans will be affected. The majority of these Americans reside in California, New York, and other expensive coastal states.
Therefore, at the margin, real estate in the heartland should continue to see strong demand.
If these takes hikes get passed, there should be even more migration to the heartland of America. Therefore, buying heartland real estate through platforms like CrowdStreet and Fundrise make sense. You want to ride this investment trend for the next couple of decades.
Here are the best cities to buy real estate in the new decade from a valuation and growth perspective.
The Easiest Way To Invest In Heartland Real Estate
Instead of flying all around the country investing in locations where many of us have zero expertise, the simple solution is to leverage real estate crowdsourcing platforms. The leading platforms are Fundrise and CrowdStreet to search for investments in the New America instead.
Both platforms enable investors looking to diversify into real estate through private eREITs or specific commercial real estate projects. Both are free to sign up and explore.
The great thing about real estate crowdfunding is that you don’t need to take on a mortgage to go all-in on one property. The deals and sponsors are all pre-screened. Further, can easily diversify your real estate investments, and the returns are 100% passive.
Every project is different. Spend time reading the research each sponsor puts together on the platform before making a decision.
Below is my real estate crowdfunding dashboard where I invested $810,000 in heartland real estate since 2016. So far, I’ve received over $624,270 in distributions with 17 investments left to go. Not bad!
Geo-Arbitrage Is Going To Be A Huge Trend
Due to technology, it’s no longer necessary to live in an expensive coastal city where a two bedroom, two bathroom apartment costs over $4,000 a month. Companies themselves have expanded away from the coasts because the cost of labor is too high.
By the year 2030, freelance workers will overtake traditional W2 wage earners thanks to the internet. If you haven’t looked, freelance opportunities are ubiquitous. Today, everyone needs to have their own website and plant their flag on the internet. Here’s my step-by-step guide on how to start your own website if you don’t know how.
Depending on your skill-set, you can earn much more contracting while being much more free than working a day job. Relying on just a W2 income nowadays is foolish because you never know when your job will go away.
Midwest Salaries And Lower Cost Of Living
Take a look at this great chart highlighting the cost of living difference in Housing, Utilities, and Groceries compared to base case San Francisco living.
Not only will more young folks decide to live in the Midwest and South, more people who’ve already made their money on the coasts will move to the Heartland as well to live a more comfortable life in retirement. As a result, heartland real estate should increase in value.
Take Advantage Of The Heartland Real Estate Trend
Good investors always think about secular changes, regardless of where they stand on the political spectrum. Heartland real estate should do well in the new decade because:
- There will be a net migration out of Blue states into Red states due to lower prices.
- As our country gets older, more retirees will move out of Blue states to stretch their retirement dollars.
- The remote work trend will continue and accelerate due to technology, forced work from home situations, and fear of commuting in densely populated areas due to the coronavirus.
- Income growth should be higher in Red states due to demographic shifts.
- The elimination of state and property tax deductions (SALT), hits higher priced states such as California, New York and New Jersey the hardest, while benefitting cheaper states with no state income taxes to deduct e.g. Texas.
- Now that investing in real estate is more efficient, Red State 10%+ cap rates compared to <4% cap rates in Blue cities are too hard to ignore. The spread should narrow.
- The expansion of who can invest in real estate crowdsourcing will lead to an increase in demand and prices.
- The rise of more real estate crowdsourcing platforms increases the supply of capital, thereby increasing the demand and prices of previously hard to tap investments.
- Invest in U.S. real estate before foreigns return to buy our property again. The pandemic served to throttle foreign real estate demand for two years so far.
Investing Where My Mouth Is By Buying Heartland Real Estate
After selling my San Francisco rental house in 2017 for 30X annual gross rent, I proceeded to reinvest $550,000 of the proceeds in real estate crowdfunding to take advantage of lower valuations and higher net rental yields in the heartland. Today, I have invested $810,000 in private real estate across the heartland and sunbelt so far.
To earn more income passively with less risk exposure was my #1 goal as a new father. I’m pleased to say as of 2022, the annual returns have averaged 15% a year with no work on my part. However, future returns are obviously not guaranteed.
With the long-term migration trend away from the coasts and into the heartland, I plan on continuing to take full advantage in 2022 and beyond, especially if there are deal sweeteners due to the pandemic and due to higher interest rates.
Companies Are Announcing Their Moves
If companies like Google and Apple are spending billions of dollars expanding into the heartland and sunbelt, it’s probably wise for investors to follow suit.
Even Elon Musk, on May 9, 2020, threatened to leave Alameda County in Northern California. In 3Q 2021, Elon Musk finally did announce that he was relocating Tesla’s headquarters from California to Texas.
States such as Texas and Florida are welcoming companies from other states with open arms. This trend will only continue as states such as California are becoming more uncompetitive with higher taxes and higher cost of living.
Since I first wrote this post in 2016, it is clear that heartland real estate has boomed. I hope you have made an extraordinary return on your investment. However, it’s also good to be aware of rising supply. If supply rises too much, too quickly, it will have a suppressing affect on house prices.
The trend towards investing in the heartland should continue. But prices in 2022 and beyond will more than likely slow. But I predict the overall median home price will still rise by ~8% in 2022. The demand for real estate is strong and will continue in this high inflation, negative real mortgage rate environment.
The Best Real Estate Crowdfunding Platforms
The best real estate crowdfunding platforms to take advantage of real estate appreciation in the heartland are:
1) Fundrise – It was founded in 2012 and is one of the oldest real estate crowdfunding platforms. Fundrise has consistently been the most innovative platform as well. They invented the eREIT/eFund category, a way for all investors to gain more stable and diversified exposure to commercial real estate. Fundrise is free to sign up and is open to all investors to explore. Fundrise currently manages over $3 billion in assets and has over 350,000 clients.
2) CrowdStreet – If you’re an accredited investor, take a look at CrowdStreet a real estate marketplace that primarily focuses on secondary metro markets. These “18-hour cities” are lower cost with higher cap rates and higher growth than the expensive coastal cities. These cities include Austin, Memphis, and Charleston. CrowdStreet has a direct-to-Sponsor model. This model improves efficiency and transparency. CrowdStreet is also free to sign up and explore.
Heartland real estate will continue to attract a lot of demand from both domestic and international capital. Notice how there are more people moving inland and to the south from 2020 to 2021.
I’m riding this investment trend for as long as possible. In an inflationary environment, you want to own real estate. And once capital accounts open up, foreign buyers will come flooding into America again.
Hello – I love reading your blog and thank you for sharing all the wisdom, I`m regular subscriber. What your thoughts on investing in Toledo and Cleveland, the other Ohio cities other than Columbus? Any thoughts on Ohio as a state generally? Would love to get your views.
What heartland cities do you see as the most up-and-coming for investing?
I like Charleston, SC.
Check these rankings out:
https://www.financialsamurai.com/the-best-cities-to-buy-real-estate-in-america/
Hi Sam,
thanks for your extensive articles on real estate investing through RECs!
I’ve read all your articles on this topic but sadly had to realize that Fundrise is not available for germans.
By chance, can you recommend any alternatives for non-Americans?
Hi David,
Unfortunately, I’m not aware of the Fundrise for Germany. You’ve got to ask locally.
However, why not invest in physical rental properties in Germany? Here is my bullish rental property thesis.
Sam
I’d be interested to hear your thoughts about the following:
Recognizing income inequality as a major challenge in the US today, it’s power to shape public discourse, and also the differences in income distribution between the coasts and the heartland, does it not contribute to making the problem worse for coastal high earners with a relative cash surplus to speculate on affordable heartland property to acquire rental properties (or “shares” in a rental properties), outbidding those in the local population that may on balance have less cash, making it more difficult for those same people to buy homes and property, and forcing them to rent from the coastal folks?
I live in a high cost coastal area and despite an adequate income feel a fair bit of financial anxiety, though of course it is not critical. Thus, I am interested in opportunities like this one, but I am wary of participating further in a process which ultimately trickles down to squeeze others with less means than me that are more in need of lower cost of housing than me, in order for me to have passive income.
Help me out here.
I think the answer is pretty straightforward. Don’t invest in rental properties, REITs, And real estate crowdfunding if you feel your opportunity is taking away from others. Let other people take advantage who are OK with trying to build wealth and take care of their family etc.
A lot of people believe that Americans are equal. Therefore, Americans should be able to invest in any part of America. There is more contention when it comes to foreigners building up American assets.
You can always just focus on making money from your day job for yourself. But without investing, it’s harder to achieve financial independence sooner.
I invest in apartments and I feel what we’re doing as investors is improving the living standards of the residents. By adding value, we drive NOI higher through a combination of rent increases and operational efficiencies, which ultimately translates to higher prices.
Higher prices is the solution to a shortage of housing, as it encourages builders to bring more supply to the market.
In coastal markets, where the supply is severely constrained by building codes, regulations, and limited land, it will take more than rising prices to solve the affordability problem. Governments need to stop doing things that restrict the supply.
I don’t feel guilty about investing in housing. I feel bad for the people at the bottom who are forced by circumstances to live in slums, but withholding capital is not going to change the situation for the better.
Sam, you give a lot of great financial advice, but when it comes to politics, well, you’ve got some work to do.
That county level map of the 2016 election (which Republicans loooove) does not remotely indicate that Trump’s victory was a landslide. Specifically, it totally ignores how many people are in each of those counties, which is what really matters.
And as those of us who appreciate facts know, Trump lost the popular vote by several million people. That’s not media bias. That’s just reality.
Very true on the popular vote. It will be interesting to see what happens in November.
I’m not giving political advice in this post. I’m just making the rational assumption that red states will outperform blue states under a Trump presidency. And so far, I believe the case has been true. And I think it’s probably going to continue to be true for a while.
Therefore, I think investing in red states over the long term is a good idea.
I made new technology in bandsawing for the primary processing of hardwood, for the oldest manufacturing industry in the United States…harvesting forests. A patent was being issued for my extreme thin bands and the machinery to process logs into boards but the economy of 1988 made financing the company impossible.
When I realised that having completed and proven machinery was entirely exposed to copying through the patent system, I withdrew the application and kept my designs private and confidential. Of the about 30 Asian countries with people taking patents, none have the proprietary information to make ultra high tension and thin kerf…my machine designs remain secret.
There are two types of wood processing machinery for the primary processing of logs into boards, veneer and circular or band saws. Veneer processing makes wood in thin sheets, 1/8″ and less, while sawmills, because of their large loss in saw kerf, are mostly 1″ and above thickness. That leaves a void in wood industry production in the 1/8″ to 1″ range…for laminating.
I have commercial land and would purchase an adjacent industrial building that I would like to build a laminate hardwood manufacturing company as phase 1 and in phase 2, make cross laminated timber framing and panels, which is the highest growth segment for solid wood. In addition to about 25% higher yields, the methods of sawing makes it possible to use 70% low grade logs to make high value building components. Look up “cross laminated timber”.
I have a great location in north Indiana and am just starting equity crowdfunding. I’ll need to raise about $2m and hope do it with mostly equity for land, building, machinery and working capital.
If wanting to buy commercial RE why wouldn’t you just buy $O or $ADC ? Simple REITs with consistent dividends and growth. No signing up and always liquid. Just click a button on your Etrade account at $0.00 commission and boom! You’re a passive landlord!
Publicly-traded REITs are not regionally focused. They’ve also shown to have equal or more volatility when stocks were selling off. I like private eREITs and private real estate deals that are more insulated from the volatility. But the price you do pay is lack of liquidity. But I invest in private investments for 3-10 year holds anyway, as should most people.
I’m a little confused about how to use Fundrise, hoping someone can help. When I go to set up an account, the only options I’m given is to choose between Supplemental Income, Balanced Investing or Long-Term Growth. I don’t see a way of choosing funds by geographic region, what am I missing?
Hi Brad, it depends on their offering at the time. Fundrise used to have a West Coast, East Coast, and Heartland REIT.
You can more surgically invest in the heartland through CrowdStreet. They are focused on 18-hour, secondary cities.
I’m, not an accredited investor. Is there a way to invest in crowdstreet?
Hi, just stumbled upon your website and podcast – great stuff!
I’m wondering if you are aware of any platforms that offer US real estate crowdfunding to overseas investors? (I’m based in Singapore). The main ones are open only to US accredited investors – presumably due to financial licensing issues.
What other strategies are there for foreign investors who want US real estate exposure but do not want to put up 100% cash upfront? Foreign investor loans are upwards of 5%.
Thx
Su
I just recently found out about Fundrise and was thinking about in investing. I would like more information about this automated real estate crowdfunding and would appreicate all comments. Thanks
Interesting viewpoint, but although housing cost is obviously an important factor in where people choose to live in is not the sole factor and for many not even the determining factor since many individuals choose to make cuts from other parts of their budget to pay for housing in a neighborhood, city, or region that offers the mix of amenities they consider critical to their family.
People do not just want a physical structure with so many bedrooms and baths at a certain price people want a house or apartment to be their “home” in a community and they think about the broad mix of what that community offers for them to earn a living, enjoy life in the manner they choose and what that community offers to help them build a better future for their families.
So analyzing housing prices in different geographic areas like different stocks in a mean reversion statistical arbitrage or convertible bond arbitrage to make an investment decision is flawed without some logical system for incorporating the economic worth to households of different community amenities and how that value affects where they to live….which is not in any way an easy task.
The Financial Samurai himself proves my point.
Why does the Financial Samurai continue to live in high cost San Francisco with his family???
He lives in San Francisco because he and his family get great value from the broad mix and quality of almost 24 hour activities and services that only the economies of scale that only a major international city can provide.
So a more interesting “Heartland” real estate investment strategy is not a broad Heartland diversification but a strategy that identifies the smaller Heartland cities that are at a tipping point for fast growth that would cause enough of short to mid-term boom in housing demand suffient to causes the sales and rental prices of the existing housing stock to rise before new construction catches up to demand.
This is brilliant analysis. I’m sure many will not believe this is real, since we’re in the early stages of this shift.
Another trend I believe is in the early stages is Peak College. As Andy Yang says: “College is over-prescribed” and we need to redirect funding into vocational and occupational training. I am looking at an investment in student housing at a vocational school (“technical college”) in the Midwest. As it is the confluence of these two trends, this seems like a great idea.
Woow what a great post Sam! I’m a real estate agent in Italy and passionate of real estate investing. I‘M investing in some crowdfunding platform in Italy, but they invest in southern Europe only. In Italy we’ee experiencing two resl estate markets: rising prices and slowing supply in biggest and most attractive cities (Milan, Rome, Florence, Naples…) and a basically flat/down prices as a national average. I am not seeing the trend you’re talking about in Italy, since most of my client are selling houses on the countryside to buy properties in the city, but will keep my eyes open to take advantage of it, if I feel something is changing.
Do you think now is still a good time to invest in real estate crowdfunding in the US Heartland? If yes, what specific areas do you recommend?
Howdy!
Can I 1031c into a RE crowdfund? On the 45 day clock and nervous in Austin bubbly as I already have 2 properties here and have relinquished my CA prop into 1031 excange.
Also, are there real estate investment advisors (or financial samurais) I can utilize on a personal level, moving a lot of $ making me nervous without 1 on 1 mentor or expert advise.
Love your site!
Clarisse
Hi Sam. Thanks for sharing all this valuable information! I’d like to ask you for Real Estate Crowdfunding companies which would accept foreign investors? Thank you in advance.
Love the website! I am curious what would happen if the country we’re to experience another real estate downturn? God forbid another 2007/2008 crisis, how would it affect our RealtyShares investments?
Real estate would go down, some areas more than others, depending on the severity of the downturn.
I think coastal city property gets hit the worst due to rich valuations. Heartland property is much cheaper.
Each investment is different e.g. equity, debt, leverage amount, etc.
Related:
Real Estate Crowdfunding Investment Guidelines
Implement The BURL Strategy For Investing
I know I’m extremely late to this conversation, but I wanted to note that with the new Opportunity Zones tax credit included in the Tax Cuts and Jobs Act, investors will be able to take unrealized gains and invest them into areas all across the US, including the heartland (Indiana has lots of opportunities) and will pay no capital gains tax til 2026 and will receive a tax credit based on how many years they keep their money in the investment. Just an extra benefit to your aforementioned value of investing in the heartland!
Hi – if investing in real estate debt, would you also not recommend investing in loans for coastal cities?
It really depends on the sponsor and the structure of the acquisition.
Wondering if you considered finding a good real estate company versed in doing a 1031 exchange when you sold your SF property to save on taxes instead of taking the tax hit and buying into realty shares? It seems like alot was paid in fees and taxes to diversify to the heartland.
Hi Sam,
Very interesting analysis and a lot of good insights. This inspires me to start looking at out of state investments.
Have you looked at Home Union for out of state investing? Would like to hear your take on their service.
Thanks,
Youn
I’m not a big fan of single-family home investments. If I’m going to invest in real estate crowdfunding, I want to buy property I couldn’t afford comfortably on my own.
It looks like they’ve raised this amount of money for their company. But I haven’t really heard much about them.
Invest where job growth is occurring and where outward development is limited (coastal cities are restricted from growing out over the water). Otherwise, no jobs, no growth and if a concentric circle of development is easy, then no significant rise in value since developers can always build more to add supply (even before new demand justifies new building). Remember, if a bank will give a developer money, the developer will build even if there is no one to buy.
Saw this CNBC article on Stanford and the midwest, seems like you’re not the only one focused on the heartland of America!
https://www.cnbc.com/2017/08/02/stanford-is-paying-up-to-160000-for-students-to-get-their-mba.html
Hi Sam,
I’m already invested in Fundrise, and keep looking at Realtyshares, primarily as a way to get higher returns. Fundrise looks great, they have a shiny website, etc. But I don’t like how the money flow is one-way (in their direction). I also am not crazy about the fees.
Anyhow, with the Fundrise it seems that the deals have been pretty thin lately. 8% interest on something where I’m 5th creditor in line doesn’t sit well with me. But it is what it is. My larger question with Realty shares is comparing it to traditional RE/Rental holdings’ tax benefits.
Can you say how Realtyshares handles things like Depreciation? From what I’ve seen it looks like they take advantage of it from their side–but that doesn’t really help me at all. Is there something I’m missing?
Thanks!
Hello Sam, I’ve recently been introduced to your website and want to first thank you for the great insights. Recently I’ve seen you discuss some of the crowd-sourcing real estate REITs like Fundrise specifically. I’ve done some research on them and even jumped in on a local sourced project in Oregon from another company in trying to diversify out of stocks. My question with respect to these REITs in general is given a growing bubble, how would they perform when the bubble eventually bursts? Not asking you to be Nostradamus or anything like that :-) just thought you might have been involved in one back then or have more insight to what happened to these types of REITs during the 2008 bust. What might be their plan in that event? Assuming real estate prices dropped considerably I assume the bet is that they do not go bankrupt and eventually could buy up some property at some low prices and catch the next bubble. Your thoughts?
If you want to invest in real estate my mother is a real estate agent near Dallas. The local newspaper was one of only 3 in the nation that endorsed trump. The market is exploding but bubbles always pop, it seems like you had to learned that a few times.
Hi Sam, long time reader here. I remember when you wrote about Prosper several years ago, and you mentioned they had an external partner that can take over in case of their own bankruptcy. Do you know if Fundrise and/or Realtyshare have a similar back up plan?
Incredibly well thought out post. I’m also a bay area resident and I’ve been thinking a lot about these ideas lately. I love living here, but man… holding a million dollar mortgage for a very average home isn’t fun.
I just came across your blog. I admire that you’ve managed to retire in this area, so I plan to dig into your posts and see how you got to that point.
Nice to meet you Caren!
It wasn’t easy retiring early in San Francisco, but prices were cheaper back in 2001 when I get first got here.
But the ideal goal is to move back to Honolulu in three years, where is actually much cheaper, housing wise.
See: https://www.financialsamurai.com/its-always-good-to-dream-about-living-the-dream/
If you consider Nashville “the heartland,” I can tell you the real estate market here is already zany. I think it’s probably over priced. The biggest draw here is not the nice weather, although it’s way better than the midwest. The biggest draw is the very low taxes, and no state income tax. The real estate, however, is frothy.
I would look elsewhere if I were investing. I bought my house in 2008, but we live in it and I wouldn’t want to be looking for one today.
Seems to me that the more democrats in a city it means more taxes to fund their savior of humanity. So liberals flee their own policies to the red areas of the map only to start a new mess for the conservatives. Just stay in your self created dream world.
Hi Sam,
Compared to the east coast or west coast, prices of homes in Texas may look cheap. In the past 5-7 years, cost of homes in Texas have gone up like crazy, especially in Dallas. Houston took a little hit when oil collapsed. However, it is coming back up.
What do you think about Midwest – Ohio, Indiana, Missouri, etc?
–Michael
I live & invest in Cleveland OH, you cant much more heartland than that! I see the results of coastal investors buying up property. I know the recovering real estate market has also influenced pricing, but a huge part is due to investors from the coasts and foreign countries. Lots of Israeli investors hitting Cleveland now. I used to be able to buy good deals for about $10,000, but 3 years later, the same deal is going for $25,000. I am not complaining, since all my previous purchases are doing a lot better, I am just noticing what is going on.
At least once/month I consult with an investor from the coast about how they paid way too much for their investment. People dont understand our economy, they buy a double for $40,000, thinking it is a good deal. They compare it to coastal pricing. They dont realize that they will never get their money out of that investment, they shouldnt have bought it for $1, let alone $40,000.
Fascinating that Israeli money is hitting Cleveland now. I know Israel has seen some HUGE startup growth over the past 10 years… like a new Silicon Valley.
The thing is, everything is relative. Your example of a coastal investor overpaying is EXACTLY the trend I’m looking to take advantage of. Yes, it’s overpaying to the in-the-know local, but to a coastal investor who is used to pay 3-10X more for a similar property, it’s a bargain. Don’t fight the wall of money.
“Don’t fight the wall of money.”
I think this is an excellent investment philosophy.
You’re voting demographic maps were interesting, and have some value. We need to remember that votes are counted per person, not by square mile. Much of this country has a very low population density, so while the red area looks impressive, it’s how many people that live there that matters.
A very informative article – thank you. Living in Australia the investment potential of ‘heartland’ real estate is somewhat beyond my capacity but I certainly applaud your thoughts about investment trends. I have long advocated investment cycles (trends) as the best way to map investment entry and exit points. The ability to do so is certainly not going to rival rocket science in complexity which suggests that with a little bit of study and knowledge anyone can achieve it.
From my experiences over the last 25 years as an adviser, most investors seem to be able to identify just the final phase of a boom, which occurs immediately before the inevitable crash and have their fingers ‘burnt’ with over priced buying of assets.
There is a lot of scholarship regarding investment cycles and it is well worth getting to know as much as you can as I believe it is probably the key to successful investment.
But like all investment ideas, you are only increasing your probability of success by getting to know investment cycles, rather than discovering a sure way to invest. If anyone has a sure fire success method I would love to hear from you by the way.
Thanks again, your article was excellent.
As a resident of Kansas City for a time, I am with you on heartland real estate. There are plenty of great paying jobs in these slightly smaller metropolitans. I’m sure California and the like will continue to command high salaries and real estate. Meanwhile the rest of the country will have “slow” and steady growth.
In the meantime, I’m afraid I’m too small to invest in Realty Shares and am skeptical of Fundrise’s fees. Looking forward to more parity in options in the future.
All the best from the midwest and south.
I like your thesis and I’m intrigued with the Fundrise model, but Fundrise is comparing their “low fees” against public REITs they quote at 6-7% up front, and 1% ongoing. Let’s instead look at Fundrise’s public filings: Fund managers carve out a loan origination fee of up to 3%, an ongoing annual management fee equal to 1% of NAV, a property management fee of up to .5%, and a property sales fee equal to .5% of gross proceeds. How do we justify paying these fees against Vanguard’s REIT, which has no upfront fees and an ongoing expense ratio of .12%?
Fundrise was offering some very lucrative terms for early investors, including $0 in management fees until 12/31/17 unless you earned a 15% annualized return. However I’m concerned that those of us who missed out on their initial offerings will be footing the bill for their current investments.
My apologies Sam with regards to my last comment. For reason I thought you were using Fundrise eREIT Heartland fund and my question was directed towards that.
Actually looks like my original comment didn’t post so I will rephrase my question. I was wondering about your thoughts on the tax implications of Realty Shares. Specifically how you feel about not being able to depreciate your real estate for tax purposes. Are you essentially willing to pay more taxes on these investments for the ease of investing in multiple properties in the American heartland?
I’m still on the fence about crowdsourcing real estate. I’m also looking at GroundFloor, which is not open in all states but is to me here in Georgia.
I was curious about your thoughts on the tax implications of investing in REIT’s with RealtyShares. Obviously, REITs tend to be less favorable since they are required to pay out 90% of their profits to shareholders vs. purchasing equities and paying long term capital gains rate when selling shares. You also cannot take part in tax write-offs (ie. depreciation of rental assets, etc) .
Are you basically willing to pay higher taxes on RealtyShares in exchange for not having to manage more of your own properties and getting access to multiple properties in the heartland?
Thanks for the great post. I’m still not the fence about crowd sourced real estate. I’m also looking at GroundFloor, which is available to me as a resident of Georgia.