Negative Leverage in Real Estate: How to Beat It

[@paulkotyk881]

Great video! Big thanks 👍

[@tacticares]

Thanks for watching!

[@frankokonkwo3662]

Awesome video

[@tacticares]

Thank you!

[@kevinwoo239]

Is it still considered negative leverage if there is no more equity in the deal after the refinance and the Loan Constant is greater than the Cap Rate?

[@tacticares]

Wow, that is a great, thought-provoking question. I'd lean towards no since there's no longer any investor equity in the deal, meaning the cash-on-cash return is infinite (denominator = 0) and, therefore, higher than the theoretical "all-cash" yield.

[@nickbouquet5876]

Hi Ike: Thanks for making this video. When you reference "all-cash yield", are really saying yield-on-cost? Meaning, the YoC needs to exceed the amortization factor or interest-only rate in order to achieve positive leverage? I have run into some scenarios where my going-in cap rate exceeds the amortization factor or interest-only factor which should create positive leverage; however, my going-in yield-on-cost is below the interest factor/rate. This scenario seems to create negative leverage, even though our going-in cap exceeds the rate factor. Thanks for your help and insight. Cheers

[@tacticares]

Hey Nick, I believe my comment was the Year 1 cap rate must exceed the debt constant. If this is true, the cash-on-cash return > all-cash yield and leverage is accretive. This isn't static, so it would need to be reevaluated each year as the NOI changes. I've seen plenty of instances where negative leverage is prevalent early in the hold but turns positive later on. Hope that helps. Ike