Our business model allows us to generate yields which are consistently 200 basis points in excess of “market”.
In other words, if any random ding dong can buy a 4% cap, then we can reliably create a 6% by doing what we do.
But, right now, a 6% isn’t that great.
Well, interest rates for multifamily loans are ~4.5% / year.
So, if you borrow $2MM, you’re looking at annual debt service (inclusive of principal pay-down) of ~$121,150.
$121,150 / $2,000,000 = 6.1%.
That means, the more you borrow against your 6% yield, the worse the cash-on-cash yield gets. Ouch.
We really need to be making 6.5% yield deals to make the math work… but prices right now make that hard to achieve.
Eventually, if interest rates keep rising, prices are going to come down, which will allow us to make higher yield deals and bring the math back into alignment.
But you can wait a long time for an irrational market to come to its senses!