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Dwight Calwhite explains why real estate investors need cap rates at least 1-2% higher than their loan rates. He uses Vegas fourplexes as an example and shows how this gap protects your cash flow when you buy.
Dwight Calwhite explains why real estate investors need cap rates at least 1-2% higher than their loan rates. He uses Vegas fourplexes as an example and shows how this gap protects your cash flow when you buy.
If you're buying real estate for investment purposes and ignoring cap rates, that's like baking a cake and forgetting the oven temp. Something's gonna flop. Cap rate, or capitalization rate, is your expected annual return if you bought a property in cash. It's net operating income divided by the purchase price. Easy math, but powerful insight. Now here's where it gets real for Vegas investors. If the national lending interest rate is 7% and you're buying a fourplex near the Strip with a 5% cap rate, you're not investing, you're subsidizing someone else's luck. In a market Vegas, where prices have jumped but rents are stabilizing, you need a cap rate that at least matches or beats interest rates by 1 to 2%. Otherwise, your cash flow could disappear faster than a gambler's paycheck. So if you're buying property in Vegas, don't just ask how many bedrooms. Ask what's the cap rate compared to today's loan rate, because in Vegas, the smart money doesn't gamble on negative returns. Follow for more real estate investing tips.
