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Updated over 9 years ago on . Most recent reply

Ayodeji Kuponiyi's profile image
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Ayodeji Kuponiyi
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  • from King of Prussia, Pennsylvania
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Ayodeji Kuponiyi's profile image
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Ayodeji Kuponiyi
  • Investor
  • from King of Prussia, Pennsylvania
  • Member since Dec 10, 2014
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Ayodeji Kuponiyi
  • Investor
  • King of Prussia, PA
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Multi-Family and Apartment Investing

Cap Rate > Interest Rate on Multi-family

Ayodeji Kuponiyi
  • Investor
  • King of Prussia, PA
Posted

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? 

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Account Closed's profile image
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Account Closed
  • Lender
  • from Dallas, Texas
  • Member since May 19, 2015
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Account Closed
  • Lender
  • Dallas, TX
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Account Closed
  • Lender
  • Dallas, TX
Replied

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.

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