Currently I am at 4.25%, amortized over 20 years, with a capped adjustment at 5 years and a balloon payment at 10 years. 

He has not maintained it over 80% occupied for 3 years yet wants a cap on a total of 95% occupancy which includes loss to lease, bad debt, vacancy, etc.

Maybe on a property that costs $200k, or has a cap rate of 10%.

I believe there is a cap on gains that are exempt too, but $110k in gain is below the threshold.

You can also think of a cap rate as an infinite series with level payments, or an ordinary perpetual annuity.

And with a commercial one, will there be a cap on the # of locations and # of units?  

I have a CAP rate metric on there, I don't have ROI.

The only way for me to compare apples to apples is by using a cap rate.  

The assumption has always been that rental income will be received in the form of fixed monthly rental payments.My thought is that a Cape Cod rental would perform better using a different rental strategy, or at the very least, other strategies should be considered. 

I would do the math and make sure I could run them at cash-flow even with a 30 year fixed, and I counted on equity pay-down while I waited for them to go up... and up they went.I had a couple  of really "good" investments where I was making a cap rate of 4-5%.