5% Cap Rate and Below

[Hollis Vossekuil]

Question is pretty straightforward, I live in the Bay Area and see numerous MultiFamily properties advertised for 5% Cap Rates and below. My question is how this is profitable for investors? If I'm most likely borrowing money at 5%, (NOI - Debt Service) would then equal 0 cash flow.

Is the strategy on this property to hold for appreciation only and forego the cash flow in the meantime? Is there some part of this calculation I am missing? Thanks guys.

[Russell Brazil]

Low cap rates are an indication of low risk assets/markets and high demand. Would you rather own a high demand asset, or a low demand asset? What happens to assets over time if demand for them is high?