This ass-u-mes that there are no other good rental properties in the entire world. Say you’re getting 6% on the dollar on a rental in CA, have the option to buy a building that caps at 10% in Tucson. Or a fixer-upper locally that caps at 8% after all repairs are done.
Assuming you wanted to free up the capital, you’d be nuts not to consider either one of two.
You buy a Lexus. Suddenly, BMWs are cheap due to favorable currency exchange. Would you be necessarily wrong to trade one for the other?
Such an attitude ranks right up there with the “you own an apartment in Manhattan. Manhattan real estate will always do well. Don’t ever sell it” attitude. I’ve heard it, and I’m still considering selling in order to free up equity to either:
(1) buy a building capping at 8% in a less-nice (ok, this is relative — everyone still goes to the same schools, and this ain’t the South Bronx) area of a gorgeous small NJ city where I grew up. Such a thing would easily pay my rent in NYC if played right.
(2) buy a larger (2 bdr) apartment in a less upscale but still attractive area of NYC — near Columbia — so I’ll have room to expand when I have kids. No moving to the ‘burbs long term for me.
