When Cap Rate > Interest Rate...

Cap Rate is defined as : Net operating income / property price. Net operating income measures how much rent is left after all the related expense, such as insurance, taxes, maintainance and operating cost. For example, if the property values is $100,000, annual gross rental income is $10,000, total operating expense is 3000. Then your cap rate will be 7%. Cap rate is very useful because you can tell if the property going to cashflow postive or not immediately. Say, you're doing 100% financing with 7% interest rate. Then you're breaking even in the above example. If the interest rate is 6%, then you will have net 1% cashflow as your profit every year. This mean you can net 100,000 X 1% = 1000 dollar every year.