The Inevitability Trap: Why "Obvious" Cities Are the Worst Investments
How the most compelling stories become the most dangerous bets
Adventures in Denver
Early in my career, I started branching out into multi-state investing.
I had active deals in Portland, Seattle, and the Bay Area—but Denver felt different.
It was “hot.” Not literally (Denver’s winters are no joke), but in terms of investor sentiment, it was a raging fire.
Everyone was buying. Everything was booming.
Every deal—no matter how tired or badly located—had multiple offers.
I remember seeing 10-unit buildings in rough shape trading at 3% cap rates.
I knew we had reached peak insanity when I started losing deals to buyers who were throwing $100K–$300K over asking just to win. And many were completely sight unseen buyers, from what I could tell.
And I was bidding, too. Let’s not pretend I was above it.
Eventually, I walked away.
I went back to Seattle and Portland—less exciting, still recovering from their grand social experiments in communal ownership (the CHOP), but at least the pricing made sense.
I remember a broker pitching me on exit cap rates in Denver:
“We’re modeling 4.25% exit caps.”
This while we were using 5.25% for Portland and 5.00% for Seattle—and even those felt optimistic in hindsight.
Buying at a 3% cap and exiting at 4.25%?
That math doesn’t work unless rent growth is on rocket fuel. And it certainly doesn’t work if cap rates end up not sticking to a low 4% (which they haven’t).
Today, I’d bet many of those buyers are in trouble.
Here’s the hard truth:
The most "inevitable" cities often make the worst investments.
The stories are too perfect.
The logic too clean.
The optimism too widespread.
And when something feels inevitable to you…
It feels inevitable to everyone else—including the person setting the price.
The Seduction of Certainty
We're wired to love stories that feel bulletproof. Manhattan as America's financial hub. London as Europe's capital gateway. Hong Kong bridging East and West (until it wasn't). These narratives are so compelling they can override basic investment discipline.
For example, in 2021, investors drove Austin cap rates below 3%, pricing in massive rent growth and assuming perpetual migration from California. By mid-2024, rents had fallen 15% and home values dropped 20%+ (Zillow, Redfin) — the market corrected faster than anyone anticipated1.
The inevitability trap works like this:
The Story: Location/demographics/trends make future growth "obvious"
The Premium: Current prices already reflect this "obvious" future
The Reality: The obvious rarely happens as obviously as expected
The Result: You pay tomorrow's prices for today's assets
I've seen this pattern destroy more real estate wealth than market crashes, interest rate spikes, or economic recessions combined. Because at least those feel risky. Inevitability feels safe.
In fact, nearly every major real estate bust of the past century, from Miami in the 1920s2, to Phoenix in 20063, to Austin in 2022, was preceded by a wave of inevitability-fueled optimism and ultra-low cap rates. These weren't fringe cities. They were seen as America's next great boomtowns.
And people willingly gobbled up the tale.
The Austin Mirage
Let me show you how this plays out in real time.
Austin, Texas became the poster child for "inevitable" growth. The story was flawless (and quite compelling, I too briefly looked at Austin but hated the brokers acting too busy for me, and everything being a 4% cap rate or lower):
Tech companies fleeing California
No state income tax
"Keep Austin Weird" culture attracting talent
Population growing 3% annually
Everyone from Elon Musk to Joe Rogan making the move
By 2021, the inevitability was so obvious that:
Single-family home prices had soared to the point where gross rental yields dropped below 3% in many neighborhoods
Investors were buying sight unseen, waiving inspections, and rushing deals through bidding wars
New apartment developments barely penciled at 3% returns on stabilized projections
Land prices reached levels that mirrored pre-2008 Silicon Valley inflection points
The story was right.
Austin did grow. Tech did arrive. Population did boom.
But the returns were anything but rosy. Austin’s average multifamily cap rate in 2021 dropped to ~3.25%, among the lowest in the nation, per CBRE. By 2023, cap rates had climbed back above 5% as investor sentiment cooled and valuations corrected sharply.4
And here's what the inevitable narrative missed:
Texas has unlimited land and loose zoning
Growth creates its own supply response
Tech workers can live anywhere post-COVID
Traffic, heat, and costs eventually matter
California policies can change faster than migration patterns
This is a textbook case of supply elasticity risk. In markets like Austin, liberal zoning and abundant land allow for rapid overbuilding, which dilutes rent growth and flattens appreciation5. Historically, every Sunbelt boom has ended with oversupply — from Houston in the '80s6 to Phoenix in 20087.
Today, Austin rents are down 15% from peak. Home values have corrected 20%+. That "inevitable" tech boom? Spreading across a dozen other cities.
The investors who bought into the inevitability story paid 2025 prices for 2021 assets. The opposite of good investing.
The Scale Trap Redux
This connects to what I wrote about in "The Scale Trap"—how Wall Street's need for massive, scalable investments distorts markets and creates systemic blind spots.
In 2020–2022, institutional capital flooded into narrative-driven markets like Phoenix, Austin, and Tampa, chasing growth and compressing cap rates to historic lows. By late 2021, cap rates in Sunbelt cities like Phoenix matched or even undercut gateway cities like LA, according to Green Street Advisors.8
But when cap rate spreads vanish, so does your margin of safety.
The inevitability trap is Scale Trap's psychological cousin. Wall Street doesn't just need big, liquid investments. It needs obviously big investments that can be easily explained to committees, LPs, and compliance departments.
"We're buying Austin because it's the next Silicon Valley" gets approved instantly.
"We're buying declining Rust Belt cities with strong cash flows and 12% cap rates" requires a 47-slide deck and six months of due diligence.
So institutional money flows toward inevitable stories, inflating prices and eliminating returns. Meanwhile, the unsexy, uncertain, complex opportunities get ignored—which is exactly where the money gets made.
The Anti-Inevitability Framework
After 8 years of real estate investing, here's what I've learned about spotting and avoiding inevitability traps:
Red Flags:
Everyone you meet is bullish on the same story
Local newspapers run daily articles about the growth trend
National media has "discovered" your market
Cap rates compress below the 10-year Treasury rate
The investment thesis fits in one compelling sentence
Green Flags:
The story is boring, complex, or contrarian
Local sentiment is mixed or pessimistic
National media ignores or dismisses the market
Returns exceed risk-free rates by meaningful margins
The investment thesis requires explanation and defense
The Counter-Narrative Questions:
What would have to change for this "inevitable" story to reverse?
How much of the bright future is already priced in today?
What obvious factors are we ignoring because they complicate the narrative?
Who's on the other side of this trade, and why might they be right?
The Seattle Lesson
Let me give you a counterexample—a place that felt anything but inevitable and continued to have terrible vibes for most of the COVID Era.
Here’s a fun headline from when the world was falling apart (in Seattle). Imagine listening to this and making your investment decisions accordingly?
Seattle, 2018. Smattering of headlines:
"Amazon Exodus Creates Office Space Glut"
"Tech Layoffs Hit Seattle Hard"
"City Council Passes Business-Hostile Policies"
"Construction Cranes Signal Apartment Oversupply"
The story was chaos. Tech volatility. Political uncertainty. Supply overhangs. Everything looked broken.
But the fundamentals told a different story:
While media narratives painted Seattle as “overbuilt,” the city’s fundamentals — limited land, zoning bottlenecks, strong job growth — proved durable. Between 2012 and 2022, Seattle home prices rose 124% vs. Phoenix’s 108%, but with significantly less volatility9.
Land constraints created genuine scarcity
Infrastructure investments were massive and ongoing
Diverse economic base beyond just tech
Global port and trade hub status unchanged
World-class universities producing talent pipeline
Anybody who bought when the story was ugly and the cap rates were 6%+. Today, those assets generate 8-12% cash-on-cash returns while comparable Austin deals are underwater.
The difference? Seattle's problems were obvious and priced in. Austin's problems were invisible and priced out.
The Inevitability Portfolio Audit
Take a hard look at your current investments. How many are based on inevitability stories?
"Miami is the gateway to Latin America"
"Denver is the next tech hub"
"Phoenix growth is unstoppable"
"Nashville is recession-proof"
None of these are wrong. But they might be expensive. And expensive inevitability is the enemy of good returns.
The best investors I know build portfolios full of assets that make no sense at cocktail parties but make perfect sense on spreadsheets. They buy the unsexy, the overlooked, the misunderstood.
They avoid inevitability like the plague.
Here’s a nice image our team put together for you - a mix of “inevitable” and “disfavored” cities. Which would you prefer?
The Uncomfortable Truth
Here's what I wish someone had told me earlier: The most compelling investment stories are usually the worst investments.
Because if a story is compelling to you, it's compelling to everyone else. And if it's compelling to everyone else, you're already too late.
The money isn't made in obvious places doing obvious things at obvious times. It's made in the gaps between stories—where reality diverges from narrative, where complexity creates confusion, where uncertainty creates opportunity.
That’s why we continue to invest in the Pacific Northwest.
Everybody - literally everyone I talk to from outside the states - continues to write them off.
Woke. Liberal. Crazy.
Okay - but that just means the narrative is not matching what’s going on on the street level. And people are missing out.
The best investments don't feel inevitable.
They feel possible.
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Redfin/Zillow Data Center – Austin Home Prices & Rent Trends, 2021–2024
NBER – Florida Real Estate Boom and Bust, 1920s
Federal Reserve / Case-Shiller – Phoenix Home Price Index, 2004–2012
Redfin/Zillow Data Center – Austin Home Prices & Rent Trends, 2021–2024
Urban Institute – Housing Supply Elasticity by City
Dallas Fed – Texas Real Estate Collapse, 1986
HUD – Subprime Crisis & Sunbelt Overbuilding
Green Street Advisors – Cap Rate Data by Market, 2021–2023
Case-Shiller Index – Seattle vs. Phoenix vs. US Average, 2000–202