A high cap rate is a warning, not a gift

The 7.25 cap that was really a countdown timer

Everybody at the table loved this one. 7.25 percent, single tenant, a clean-looking flyer. On yield alone it was the best thing in the market, and I could feel the room leaning in.

So I did the boring thing and read the lease.

Four years left. Not fifteen. Four.

The guarantee wasn't the national brand you'd recognize. It was a single-store LLC, basically a promise from one location's checking account. And the roof? Landlord's problem, which is a polite way of saying the buyer's problem. It was old.

That juicy 7.25 wasn't a yield. It was a countdown timer on a building you'd be re-tenanting and re-roofing yourself somewhere around year four.

What to take from it

A high cap rate isn't a bargain, it's the market whispering "there's a reason this is cheap." Your only job is to find the reason before you wire the money. Usually it's hiding in the term, the guarantee, or the capex.

▶Try this scenario in the analyzerLoads this deal so you can watch the model flag it, then change any number to run your own.

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