I would propose a better way of evaluating real estate and that is to take the difference between the CAP rate and prevailing interest rate and use that to evaluate whether something is a deal or not.D = CAP - %APRThis would allow you to calculate the spread which is directly related to your debt assisted profitability (like a cash on cash return).You can vary what “D” you will accept based on the normal factors you would consider when thinking of the CAP rate (location, building type, number of units, financing, deferred maintenance, etc).You could also rearrange the equation to calculate the CAP to search for opportunities and how to offer for property:CAP = D + %APRIn this case, you can actually figure out the CAP by knowing the “D” you want to get for a given location, building type, etc and understanding the financing available to you and other investors for the opportunity.Any reason this is an inferior approach to CAP rate or cash on cash return?

Too many sellers mess up by trying to save an additional $1-200 on an inferior brokerage.

Seeing as how you can rent out your personal home, or ANY home you own for up to 2 weeks and not have to pay any taxes on that rental income, I see no reason why you would be forced into a separate loan product with inferior terms.   

I constantly warn people that there is simply too much risk for the average person in an auction: House full of mold, honoring the existing tenant’s lease, meth houses, current owner pouring concrete down the pipes to spite the new owner, evictions, finding out you just bid on an inferior lien (like you just did), municipal liens, back-due child support, IRS liens ... the list goes on and on.At least you only lost $16,000.  

In general, areas that produce higher "paper" returns, will have a higher risk profile.  ...A 5 cap in southern Oregon is not necessarily inferior to a 12% COC in St Louis depending on your investment goal.

Some of the differences with SFR that make them less valuable than otherwise similar comps are location on a busy street, smaller lot, bad condition, structural defects, higher tax area, different school zones, different deed restrictions, access to main roads, rush hour traffic, obsolete or unpopular architectural style, inferior finishes, time since remodeling, age of roof, flooring, and others too numerous to mention.To get the discount to fit your formula, you’d probably need to find a house needing significantly more than $15k of work.

Normally these things cost hundreds to rent and I've seen cameras online that cause thousands.My question is primarily, what about this $100 camera is inferior?

Denver schools as also inferior to Austin.Ride the boomtown wave if you can but be prepared to jump ship when the leaks start.  

Probably costs more and takes longer for an inferior product too.I think the formula that could work would be a consortium of various professionals from various professions working together to offer what you are envisioning.

It’s too expensive in terms of interest paid/holding costs.Lastly, a HELOC is just an inferior loan to hold a long-term rental property because the rates are usually higher and variable, especially when the HELOC is on a rental.