Cap Rate > Interest Rate on Multi-family

[Ayodeji Kuponiyi]

I heard from a recent podcast that Cap Rate should exceed interest rate on a multifamily in order to be profitable. What are your thoughts? 

[Account Closed]

Quick lesson on Band of Investment Cap Rate:

LTV x Interest rate = Debt Cost

+

Equity x Equity Yield Desired = Equity Return

Derived Cap Rate

Example:

(80%LTV) x (4.0% Interest Rate) = 3.20%

+ (plus)

(20%equity) x (10% Desired Yield) =         2.00%

Cap rate need to achieve above =             5.20%

Hope that helps.