The End of Cheap Debt: The 25% Below-Market Rule
When money cost 3.75%, cheap debt did the work. In today's 6.75% mortgage environment with an 8.29% mortgage constant, debt works against you unless in-place rents are deeply discounted.
At a 6.5% going-in cap, a rent roll 20% below market takes yield on cost to 8.13%—still below the 8.29% constant. At 25% below market, yield on cost reaches 8.67%, clearing the constant so positive leverage compounds your equity.
The 3-Cycle Wealth Ladder ($564k to $2.7M Equity in 9 Years)
- Deal 1 ($1.40M Buy / $1.87M Stabilized): $564,000 equity invested. 3-year hold per cycle.
- Deal 2 ($2.35M Buy / $3.13M Stabilized): 1031 exchange net proceeds ($958,883) rolled forward tax-deferred.
- Deal 3 ($3.95M Buy / $5.27M Stabilized): Final 3-year hold yielding $2,705,000 net equity and $664,000 cumulative cash flow (6.0x equity multiple, 24.8% IRR).
