I bring this up to illustrate that we believe our tenants are getting a very fair deal.)

As @Scott Lillico illustrated, most of the "Big-5" have a hybrid financing product (for residential properties) which is a combination note and secure LoC.  

This is commonly illustrated by doing a 5 year scenario where you sell the property at the end of that term.  

If you project $550 per house across the 10 houses you could buy in this manner you would have $5,500 in cash flow for the same 200,000 investment (33% Return)Now these numbers don't account for nearly any of the expenses you should consider when evaluating a deal, I'm just illustrating the gross income difference with using a mortgage for leverage.You still want to be a cash buyer because of the advantages Chris pointed out.

Lets assume (for illustration purposes) your annual gross rent is $1000.

I would think investors would want that to be a lot more consistent, and an efficient market for fixer uppers would reflect that.Regarding the gray lines of intersection, not sure if they are just poorly illustrated or unrealistic.

@Jordan Archer I'm somewhat happy you asked this question because I think it helps illustrate how subjective cap rates are. 

I can illustrate this for you.

@Russell Brazil @Andrew Syrios great illustrations.

Combining your pay down on your loan and appreciation of $150,000 you need to ask yourself would you buy that same duplex with $200,000 down (adding 50k for pay down for illustration).