Why do people invest in 6.5 to 7% cap rates?

[Account Closed]

I live in midwest ohio which is supposed to have some of the highest cap rates in the country and I am consistently seeing low B grade multifamily properties selling for 7 percent cap rates, is the competition really this fierce?

At 7 percent there is  no cash flow, for example (correct me if I'm wrong)

5,000,000 purchase price, 20% down, 4 percent 15 years fixed.

350,000 noi (7 percent)

So financing comes out to roughly 360,000$ a year!!! so this example has negative cash flow when you have to pay tax on the equity (after interest and depreciation) you're building (correct?) 

Basically my question is why are people doing this?

[Chris Adams]

Are you really talking about $5MM B class properties or did you use $5MM as an example. When you get into multi million $ properties its a different game. There is a considerable amount of speculation done by people in that market who know things others don't about an area. 

Also Foreign money is investing in the US in the price range for other reasons beyond todays CAP rate.

Now if your not really talking about the lower price market, well then I just blame it on some nube that watched HGTV.