I bought a deal with negative leverage. Here's why...

[Justin Goodin]

I bought this townhome community with NEGATIVE leverage going-in. And don't regret it...

What's negative leverage?

When your cap rate < interest rate.

In this case, we bought this property at a 5.5% cap and locked in an interest rate of 6.7%.

Some would argue it would be cheaper to buy the property in cash.

So why the heck would anyone buy a deal with negative going in leverage?

✅ Future Upside Potential

In our case, we were willing to accept a lower yield in the beginning, in exchange for a higher return at stabilization.

Our stabilized cap rate is projected to be close to 10%. With a yield on cost at 8%.

I could care less what the going-in cap rate is, as long as I see a path to substantially add value to the property.

Many value-add investors do exactly the same thing.

What are your thoughts about buying deals with negative leverage going in?