Midwest Real Estate Investing: With Everything on the Line, Watch How One Big Decision Actually Changed My Entire Strategy In a Second

When I first stepped into the world of Midwest real estate investing, I had no idea it would completely reshape my strategy. In 2001, I purchased a small multifamily property in San Francisco’s Marina district—a classic Edwardian building that had been in the same family for over 100 years. Translation: it needed a lot of love.

After major renovations—including jacking up the structure to install new steel framing and expand off-street parking—I had squeezed nearly all the value I could from the asset.

San Francisco’s Market Froth and My Exit

At the time, San Francisco’s apartment market was overheating. UBS and Credit Suisse were quietly funding a buying spree by Walter Lembi, the city’s largest landlord, through a $100 million credit line that required only 5% down. They repackaged this debt for institutional investors. Lembi became the biggest player in town—until the music stopped in 2009.

With the Great Financial Crisis (GFC), capital markets froze. Vacancies rose. Rents fell. Lembi couldn’t service the debt and began returning properties to the banks by the truckload. He passed away one year later, nearly bankrupt.

Selling at the Peak Took Conviction

In 2005, I sold the Marina property. I didn’t fully grasp the mechanics behind Lembi’s spree, but I knew the market felt saturated. Reinvesting in San Francisco didn’t make sense—why sell high only to buy high again? Shunning San Francisco took courage, as many brokers were pushing hard for wonderful 1031 exchange opportunities. But I decided to look east.

I toured Oakland, Sacramento, and Reno. Oakland felt stagnant. Sacramento was frothy with institutional capital. Reno was simply depressing. None of these markets made sense.

With my 1031 deadline approaching, I broke the boot (by taking the cash) and paid taxes. That decision gave me something far more valuable: time.

As a rule, I never let the tax tail wag the profit dog.

More important, I did not force myself to invest in the wrong markets at the wrong point in the cycle. This freed me to look for value, not just compliance.

That journey led me to Midwest real estate investing—specifically, Ohio.

Midwest Real Estate Investing: Ohio’s Contrarian Appeal

Ohio presented an ideal opportunity with:

  • Pricing and regulatory arbitrage with no rent control
  • Instituional capital fleeing the market
  • High cap rates and low competition

AIMCO (NYSE:AIV), a Denver-based apartment REIT, was selling all of its Midwest assets. At the same time, Fannie Mae and Freddie Mac designated Ohio a “Pre-Review” market, meaning each loan was underwritten manually on a “case-by-case” basis—discouraging lenders and making capital scarce.

This created what I call a yield vacuum—high returns with little investor appetite. Not everyone believed in my startegy. A New York hedge fund manager warned me Ohio had the nation’s highest foreclosure rate (it would soon flip: during the GFC, Ohio’s worst hit cities would be eclipsed by California cities like Sacramento and Stockton). Other lenders said I shouldn’t buy anything more than a 90-minute drive from home.

That advice ignored market fundamentals.

Yet I didn’t dismiss the risks; I priced them in. We ran models for rent, price, and occupancy declines to test my resilience.

I knew that the one thing I could not fix after closing was my purchase price, so I worked very hard to find an asset whose price reflected the risks of investing in Ohio from a distance, and I sought to limit any remaining downside exposure.

The Midwest offered contrarian value—and Midwest real estate investing was how I seized it.

Buying Near the Bottom—Just in Time

In 2006, I bought a 58-unit property on the I-75 corridor in Southwest Ohio. While I missed the exact market nadir (2005), I was close enough. I avoided the worst of the GFC crash in San Francisco and Sacramento and benefited from the rebound in Midwest rental demand.

As subprime mortgages collapsed, people returned to renting. Meanwhile, my Ohio property continued to cash flow. I still own it today.

Midwest Real Estate Investing Still Holds Opportunity

What I learned is this: pockets of the Midwest offer growth, resilience, and overlooked value.

Coastal investors with “flyover state” mind sets often miss these markets due to outdated narratives. But over nearly two decades, I’ve seen time and again that the Midwest real estate investing thesis holds up.

There’s less hype—but more staying power.

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