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Updated over 2 years ago on . Most recent reply

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Patrick K.
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41
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invest in a property whose cap rate < cost to borrow?

Patrick K.
Posted

Is there any merit to this? I find CoC return on real estate property is generally low already without leverage, not to mention with a leverage that will decrease the CoC return further. mayeb bank on appreciation?

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Scott E.
  • Contractor
  • Scottsdale, AZ
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Scott E.
  • Contractor
  • Scottsdale, AZ
Replied

Great feedback from Andrew.

Most of these long term buy & hold investors who are buying deals at a low cap rate, are underwriting the deal with a much higher pro-forma cap rate. That comes with increasing income and decreasing expenses over time.

But what's interesting is just how long this can take. It may be 2-3 years before the property is renovated and stabilized at the pro-forma rates (or even longer if major renovations are needed!) This requires patience. Lots of patience.

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