Need Help: What does it mean when my Cash-on-Cash percentage is lower than my Cap Rate?

[Michael Krassos]

Stay away I imagine, but seriously I'm analyzing a deal and want to make sure I understand what is happening.

It's a 2-family to buy and hold for $400,000, will put down 25%, so mortgage at $300,000.
Income is $45,600/Year
Expenses is $24,680(Taxes, Insurance, Utilities, reserves for vacancies and repair)
So NOI is $20,920.

After Mortgage is paid I have a seamingly attractive Cash Flow of $355, that's $177.45 per door!!

After factoring in my Cost to Purchase of $4838....

My cap rate is at 6.15% (I consider okay for NJ and condition of property), and my CoC is 4.74%!

What's is happening? Why is the CoC lower than my Cap Rate? Is this a deal or not?

[Giovanni Isaksen]

@Michael Krassos It may or may not be a bad deal just because it is negatively leveraged. If you acquired all cash you would earn a higher return but if it's not possible to go in with no debt then the deal deserves extra scrutiny because your margin of safety would be thinner. Extra care should be given to the state of the neighborhood and it's future prospects as well as making sure the repairs and expenses are nailed down. I would especially want to understand any deferred maintenance and future capex needs.