If your buying a property, your cash on cash returns (or ROI) can easily be financially engineered to look attractive, while the underlying deal may still be mediocre or even bad.

Attractive debt with low rates and high leverage results in juiced up returns.

Here's an example

I just turned down a clean asset with a very unique floor plan for the market and fully amenitized.

Problem was, the seller was asking a 5% cap for the deal, with minimal $75 or so upside per unit, which would result in about a 6% cap.

In today low interest rate environment, you can smack a 75% loan to value debt, with 3% interest and here's the kicker - 4 years of interest only payments.

With the interest only payments, your cash on cash returns are 10%.

While 10% returns are tempting, I do not believe in a 5% cap rate valuation and no apparent exit strategies.

Expensive deal with attractive debt.

I like to buy undervalued deals that you essentially make money on the day you've bought it. Basically r/e that's on sale.

Conversely, I'm looking at a deal with a proforma 8.78% cap rate that is getting quoted with a 65% loan to value loan and a 6.5% interest rate.

My cash on cash will only be 9.22% return, but cheap r/e is how you get rich in the long run.