Totally Crazy? Keep Renting in High Market, Invest in Low Market

12 Replies

I've been listening to the BP podcast and just finished the one with Ashley Hamilton. This had me questioning if it actually made any sense to invest in a more affordable market than mine. At the same time, keep renting in my marketing. Of course, still keeping my eyes are peeled for a good house hacking opportunity.

Has anyone tried this? If so, would you vote for or against it? Or does anyone just have an opinion about it?

Otherwise, I am wondering if purchasing mobile homes in this high market and renting those out could be a place to start. 

In my market a 2/2 condo easily goes for $300k. In other markets, an entire house 3/2 house for $100k. I keep hearing to invest in markets that make sense for you. Agreed, but would it make sense to do this while still paying rent?

I think what you are talking here is a housing arbitrage but it should be the opposite way. It makes more sense to rent in a low cost market and invest in a high cost market. For example, let's say you are renting something for yourself in a low cost market for about $700 / month. In a high cost market rents would be much higher, so you buy a house there and rent it out for $3000 / month. This should produce you enough cash flow to partially cover your own rent payment. 

If you do the opposite, this is what you ultimately get: you rent in a high cost market the same apartment for $1,500. You buy a house in a low cost market and rent it out for $2,000. The spread between the two markets are only $500, whereas the spread in example #1 is $2,300. The first scenario will give you a higher cash flow which can partially cover, if not all, your whole rent payment. In the other scenario, after mortgage, maintenance, and reserves, you won't have much cash flow left to cover your rent payment. 

If you want to do a housing arbitrage, you rent in a low cost market and invest in a high cost market. 

Tina, 

Thank you for your replay! I don't know if I am talking about housing arbitrage or not. I 100% understand your explanation on how it works better the other way. Unfortunately, that is not my situation. 

Or maybe you are saying it is a crazy idea?

@Tina Tsysh

I beg to disagree. Its not the value of a home that produces good opportunity to invest, but the return that home gives to you.

You can take 3 x 100 k houses and produce a much better return than a 300k house. But i prefer to live in that 300 k house... if i can afford it, no harm on that.

@Tina Tsysh You may be able to rent the property out for $3,000 a month, but that’s for nothing if the mortgage is $3,500...which it probably would be after putting a down payment in the six figures. Take that 6 figures worth of capital and invest in something that will cashflow.

@Ben Brown that’s what my wife and I do. We rent an apartment in LA and buy houses in the Midwest. The rent on our apartment is MUCH less than a mortgage would be if we bought a comparable unit in this neighborhood, and the DP required would be in the six figures. We save money by renting and invest in real estate that cashflows. The down side is we miss out on all that appreciation. You need to know what your goals and priorities are at this stage in your life. We’ve chosen to build our barn first.

@Ben Brown

I do exactly what @Jonathan Hulen does. I don't confuse investing in real estate with living in real estate. I look at the real estate I buy as an investment. The real estate I live in is NOT an investment. I like living in A-class areas with great weather. I like investing in solid B+ to C+ areas with both cash flow and forced appreciation through renovations, I would not live in my rentals. Nothing wrong with them, I'm just not my target tenant. 

I have a rental portfolio in the midwest and I invest in RE in LA, but I don't own rentals in LA.