Financing for low CAP rate

5 Replies

Is it possible to get a loan on a property that has a low CAP rate? It seems mathematically impossible to cash flow with a loan if the cap rate is below 7%. I don't think any lenders would lend on something that doesn't cash flow. Am I missing something, or do people just have to pay cash for these properties?

@Michael Craig

Would a value add have a low cap rate? I guess I’m talking about turn key because nobody would want to buy a 4 cap that needs work I would assume.

I’m mostly looking at 6-10 unit multi family under 1 million. I have 500k cash to invest, but my market only has 10 cap slums under 500k, and I fear that these may be beyond my expertise. I like some 5-6 caps that are 800k, but even putting half down, the math doesn’t seem to work. This makes me feel like I might be looking for the wrong type of loan or the wrong type of property.

@Michael Craig

That's exactly my point. Everything with a low CAP rate seems fixed up. It's like they were flipping the apartment complex and want top dollar for it. The problem is that anyone who has 800k to spend shouldn't want that low of a return.

I also have a hard time buying this “rents could be raised to market for higher returns” nonsense. If the rents could be raised so easily, the seller should raise the rents and raise the cap rate.