Consider the following:
I purchase a stabilized multifamily asset at a 6 cap, hold it for 5 years with 3% annual I&E growth, and sell it at 6.25 cap. This gets me to a 7.00% unlevered return and a 13.27% levered return assuming 75% LTV and 4.25% Interest rate. I am including closing costs on acquisition and reversion.
This hypothetical scenario seems too good to be true. Assuming this hypothetical asset could indeed be acquired at a 6% and all market participants are rational, the only explanations to me are that other market participants would be assuming lower rent growth, more cap rate expansion, or very different debt assumptions. Am I crazy?