Learning and teaching myself so making problems and asking questions in the process.
If i’m buying a property for $1M and want a 10% CR. Does CR matter if i’m paying all cash? My mind says yes, but someone told me no.
[{"id": "hz9blaw", "text": "What do you mean by \u201cmatter\u201d? If you buy a 10 cap deal all cash you\u2019ll get a 10% return year one. If you want a 10% cash-on-cash return you could buy a lower cap rate deal and still hit that return through the use of debt", "replies": [{"id": "hz9c1a6", "text": "By \u201cmatter\u201d, I mean its different if its an all cash purchase than if it were to be a debt purchase right?", "replies": [{"id": "hz9cnei", "text": "No. The price is calculated based on the cap rate that the seller/broker determine is market. NOI/cap = price.  If you buy they deal with an 80% ltv loan or if you buy it all cash, you are still buying it at the same cap rate, but your levered return may be different when measured in terms of cash-on-cash return and IRR.  Put yourself in the seller\u2019s shoes: the cap rate they are selling for is not impacted by how you finance the deal.", "replies": [{"id": "hz9ct9t", "text": "This makes sense. Thanks for the detailed explanation.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i0rd59g", "text": "Hello OP, I have a question here... why would you buy this all cash?   \n\n\nIf you'd like to explore financing options, I'm a commercial mortgage broker and can promise that the most savvy CRE investors do not use all cash to purchase properties. There's a sweet spot between down payment amount and rates where you are incentivized to put down a bit more than the minimum down payment, but I wouldn't suggest using all cash. DM me if you'd like to discuss further.", "replies": [], "depth": 1}]