At the core of any income-producing real estate asset is one thing: future cash flow.

And the market tells you how much that future stream is worth through the cap rate (Net Operating Income ÷ Purchase Price).

📉 The higher the cap rate, the lower the perceived value.
📈 The lower the cap rate, the higher the valuation.

That's why understanding how the market prices the cash flow stream is critical when acquiring property. If you overpay by buying at too low of a cap rate, you're underwater on day one.

Let's break it down:

▶️ You buy a $1M property at a 5% cap rate = $50K NOI
▶️ Finance 75% of it at 3.5% = $26K annual debt service
▶️ That leaves $24K/year in post-debt cash flow
▶️ $250K equity generates nearly 10% cash-on-cash return

Sounds great, right?

But not so fast…

If the market cap rate is actually 6%, the property is only worth $833K based on its $50K NOI. You just overpaid by $167K. That equity? It's instantly eroded.

This is why the buy matters more than anything in commercial real estate.

🏁 Your stabilized yield (post-renovation NOI ÷ total project cost) must always meet or exceed, the market cap rate. If it doesn't, walk away.

Forget this rule, and you can lose six figures overnight.
Remember it, and you'll set yourself up to win.

🔑 Real estate is a game of disciplined math not emotion.