What does it mean if cap rate is lower than interest rate?

What Happens if Your Cap Rate is Lower than Your Interest Rate in a Real Estate Investment?

If the cap rate (capitalization rate) of a property is lower than the interest rate on a loan used to purchase it, it generally indicates that the property's income, after accounting for operating expenses, is not sufficient to cover the cost of the debt. This situation is commonly referred to as negative leverage, and in a worse case scenario it means the investor might need to pay out of pocket to maintain the property and its mortgage. It also suggests that the property may not be generating a high enough return compared to the risk or cost of financing, often indicating a lower yield investment in a possibly high-priced or low-income generating market.

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