How Do Sophisticated Investors Make Money?

Just grab this out of a new Mark or recently in this models, the interest rates, which, you know, all-time lows. Once again, maybe it’s been creeping up this first quarter, but still pretty much as low as it’s ever been. And the cap rates on multi-family and that’s, this is just a general cap rate for all markets, all asset classes.

So the important thing, what I want to show here is everybody asks, when does it attempt to buy? It’s always a good time to buy when you’re trashed, but as investors, what we do is we’re basically making money on the spread between the cap rate and the interest rate. So right now, cap rates are 5.8% on average, and that the ten-year treasury as is at a 0.93 investors make money on it spread.

And then of course we apply leverage good, healthy leverage. On top of that to magnify those returns, you look what’s been happening is last few months, that’s spread between the cap rate and the interest rates is a lot bigger than normal. Some of the squeeze points of times where it wasn’t a great place to be investing was mid 2018.

As you can see by the charter that there was a bit of a squeeze there, or maybe in between 2006 and 2007, there was this, there was also squeezed there, but the times were the spread of widens. Now that’s the time to invest like mid 2012 year and right now, but that’s a year academic look of how investing works essentially.

And this is what a bank does. They go in and invest in arbitrage of money somewhere else. And they take on debt, but good debt to be able to afford onto the asset that cash flows.

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