A couple of great phone calls yesterday. One

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A couple of great phone calls yesterday. One about the ever present tug of war between capital growth and earnings, the other about financing, and keeping properties forever. Today I'm talkin' about paying too much attention Real Estate Agents in Beverly Hills to obtaining high cash flow properties when the main agenda is for capital growth. I'll talk about the second conversation in a different post.

Simple - Captialization price is what you get when you divide the retail price paid for an investment (income) property into its Net Operating Income (NOI). If you paid cash it'd also be your own before tax 'cash on cash' return rate. Example: Paid $100, 000 with NOI of $8, 000 = Cap Rate of 8%.

Having a 50 million dollar bill would definitely change everything, wouldn't it?. You'd probably buy all the super located NNN leased properties with high cap prices you could get. You'd also acquire a handful of 5-star mobile home parks, and/or some well located mini-warehouse storage space operations. Then you'd make sure each of the checks were wired to the appropriate bank account - which would be your operations time each month.: )

Furthermore, you needed acquire an EIUL, using about 10% of your $50Mil. Note: Soon we will be posting on EIUL's soon, by using cool examples. Bottom line on 'em, is that they're a superb source of taxes free income which upon demise offers a payoff to your heirs not really subject to inheritance taxes. Like I said, cool.

At least you'd perform all that if you followed my advising. You'd want quality no-hassle cash flow.

Search my archives for 'get outa dodge' and you'll quickly find I wouldn't buy anything, any place in San Diego -- regardless of the cap speed. I say this in the context belonging to the typical investor, whether they're lookin' for capital growth or earnings.

A block of duplexes throughout East L. A. or equivalent type locations in San Diego (read: anywhere in California) is what I'd avoid like the plague. East L. A new. cap rates are of course higher compared to Beverly Hills or Los angeles Jolla as most folks live in typically the relatively low rental rate spots cuz they have to, and in areas with mansions cuz they choose to.

I'd buy a bunch of 1-4 unit props in a growth region which allows for the purpose of leverage, fixed rate debt assistance, quality tenants, and an acceptable lowest cash flow from Day 1 . (Properties must ALWAYS pay for themselves from the start. )

We don't 'expect' higher admiration, we research, apply our abilities, and make a prudent judgment contact. Let's take a growth area inside Texas and compare it in your block of stuff in Far east L. A.

Again the point:

rent/price ratio

you're giving back

Is just not that backwards? Yep - consequently stop it. It makes no good sense in real life to buy properties in obviously inferior locations so you can point out high cap rates and slightly better rent/price ratios. In the end, almost all of the so called high cap rates prove in hindsight to have been mythological when the Firestones hits the tarmac anyway.

Remember -- the idea is to grow your capital. A few thousand money over a 5 year hold time period is just not worth receiving $50, 000 less in appreciation. Is there anyone not in agreement with that? >

Think about location for a minute. Does one live where you

to live, or where you

to live? If the deciding factor was basically financial, and you're living where you want them to live, where did you steer clear of? Betcha the rentals in the areas were relatively high.: )

In San Diego we have a perfectly very good area in the East County, a incorporated city called El Cajon.

The rent is far lower intended for comparable property than the contiguous city of La Mesa. La Mesa is a fantastic place to live, and has been for as long as I've lived in San Diego -- 1967. El Cajon on the other hand, at least with regard to renters, is the option of choice only because their rents are far lower than can be bought in La Mesa.

Guess which town has higher quality tenants, lower limit rates, better appreciation, and increased tenant and investor demand? > Duh. We'll consider that question rhetorical.: )

What's in text message books and what you find in true to life aren't the same. (Stop, I want to pay attention to that gem. ) High limitation rates in a book are neat. Yes, I'd rather have the property in 'Chapter 5' of

, no doubt.

They don't exist and haven't since I was born. They simply aren't worth the trouble. And in the final, the appreciation is terrible as compared with the so called inferior cap rates in other places.

In fact , I'll buy a bunch of Eastern L. A. or San Diego duplexes and trade them for a tiny loss for some of your brand new Colorado duplexes - and I'll provide you with a small profit to boot. And in several years I'll be so far ahead in any way you want to measure I won't be able to see you in my rear view mirror. Of course high cap rates are preferred to low. That said, only when they're consumed the context of superior locations to begin with does it become a real life decision.