Newbie MF cashflow question

[Patrick Sears]

Hello,

SFH investor here thinking about kicking it up a notch to apartments. Everyone knows the current market is definitely a seller's market, with low cap rates. Been reading that cap rates aren't as important as every newbie thinks, and that a low cap rate property can be a good thing in the long run i.e. "go with quality".

However, my financial calculator is telling me this doesn't work...

For example: A class apt complex, $20m purchase price, 3.5% cap rate ($700,000 NOI), 20% down ($16m note).

At an interest rate of 3.5% over 240 months, the yearly debt service would be $1.11m for a negative cash flow of $413k.  For a 360 month term the yearly pmt total would be $862k for a negative CF of $162k.

So how does this work exactly? What am I missing?!?!

[Bjorn Ahlblad]

@Patrick Sears well that one obviously does not work for cash flow but some investors are buying for longer term appreciation; or turning the whole building into condos, a (foreign) investor might need to launder money, an investor might be trading in a 1031-selling an even worse performer. People buy property for different motivations, sometimes simply because they read it was the thing to do. All the best!