“You want your interest rate to be less than your cap rate or the other way around. You want your cap rate to be greater than your interest rate.” -Christina Suter
Today I am sharing with you something I learned a long time ago that helped me improve my investing. It was learning the difference between cap rate and interest rate and how they play a major role in investing. The first rule of thumb is your interest rate should be lower than your cap rate. An example of this is purchasing a million dollar property and putting 30% down. You are financing the other 70% with an interest rate of 5%. If your cap rate is also 5% then what money are you bringing home in comparison to what you are giving to the bank? You always want to have a lower interest rate and a greater cap rate. That is the rule.
Topics Covered in this episode:
- What is the difference between a cap rate and an interest rate
- Why should the interest rate be lower than the cap rate
- How do you find out the difference in percentage you have to pay back to the bank
- Why is this rule so important to understand
- How does having a higher interest rate over a cap rate affect your profit
The Real Estate Breakthrough Show with Christina Suter is where we talk about the reality of real estate, the mindset you need and the tips and tricks to get you moving forward in investing. Join us every week and learn everything you need to know to invest in real estate education and create real wealth for a lifetime.
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