Who is ACTUALLY cash flowing with these interest rates???

[Mark A.]

With interest rates at or near 7%, who is purchasing property right now (or in recent times at these rates) and actually predicted to cash flow after expenses (mortgage, taxes, repairs, maintenance, insurance, etc.)?  

Sure, you can cash flow if you buy a property that needs a full gut rehab, but I'm more talking about small/medium multifamily that may require none to some rehab (new floors/countertops/etc). Cap rates, at least in my analysis, do not have seemed to have dropped proportionally to rates.

I have been looking in a lot of markets, and the deals are sparse and people are still seemingly throwing money at properties assuming that rates will be 5% at the end of the year and rents will continue to grow in the fashion they did during the pandemic.  

My thinking is this - there are two likely scenarios in the near term, both of which lead me to NOT buy property assuming I will cash flow better in the very near future:

(1) Rates are dropped because of a recession.   With a recession, unemployment shoots up, which will be bad for rents and vacancy.   

(2) No recession.  Unemployment stays where it's at, we'll continue to have high inflation and rates will continue to be raised.  The argument could be made that rents will continue to increase with high inflation, but the data I've seen indicates that people are maxed out right now. Everyone seems to forget that interest rates don't just affect mortgage rates and business's ability to get loans, but your everyday tenant's credit card interest rate just increased also.  Wages are also not increasing at the same rate as inflation.  And if rates continue to go up, presumably we will see unemployment go up at some point leading back to scenario 1.  

The point is, it appears that the only way inflation goes away is with unemployment going up, at least at some point.  And in that case, I don't believe you will be in a better cash flow position.  

Where is the silver lining?  What am I missing here?  Is everyone just banking on appreciation like we saw over the past 3 years or a "soft landing" (where magically, inflation goes down and unemployment stays low). 

Mark