Two publicly marketed properties recently offered a useful comparison. One was a small single-tenant industrial building. The other was a 24-unit apartment property. Their tenants, operating risks, and replacement users were different, but the headline numbers looked remarkably similar: advertised cap rates of 6.25% and 6.32%.
On the first pass, both appeared to clear a 6% yield. On conservative amortizing debt, neither cleared our coverage screen.
A cap rate is a property yield. Debt-service coverage is a financing test. Confusing the two is how a reasonable-looking acquisition becomes a thin-margin deal.
The financing equation
We compared both properties using the same illustrative financing: 65% loan-to-value, 7.0% fixed interest, and 25-year amortization. This is a screening scenario, not a lender quote.
At those terms, annual debt service is about 8.48% of the original loan balance. Because the loan equals 65% of the purchase price, debt service consumes about 5.51% of the purchase price each year.
At a 6.25% cap rate, the implied debt-service coverage ratio is about 1.13×.
At a 6.32% cap rate, the implied debt-service coverage ratio is about 1.15×.
To reach 1.25× coverage at the same leverage and loan terms, the property needs a going-in cap rate of roughly 6.89%.
That last number matters. A 6% cap rate can sound conservative in a marketing package while leaving very little room for a vacancy, an expense correction, or a repair.
Industrial: the lease is not diversification
The industrial property had useful physical characteristics: climate-controlled flex space, grade access, a fenced yard, and plausible replacement users in contracting, service, light manufacturing, or regional distribution.
But all current income came from one tenant. The advertised cap rate assumed that income remained intact and that reimbursable expenses were collected as expected. A vacancy at lease expiration could mean downtime, repairs, brokerage costs, and a new tenant-improvement package before the building earned again.
At 1.13× coverage, the property did not need a disaster to become uncomfortable. A 10% reduction in NOI would take coverage to roughly 1.02×.
The right response is not to reject the building because it has one tenant. It is to price the lease risk correctly, verify the reimbursements, understand replacement rent, and determine how much equity or price movement is required for the debt to remain durable.
Multifamily: more tenants, different risks
The apartment property diversified rent across 24 units and fit the scale we can evaluate for professional management. Its published cap rate exceeded our rough going-in screen for Western multifamily.
Unit count does not eliminate risk. Older buildings can hide capital needs. Taxes and insurance can reset after a sale. Utility leakage, concessions, delinquencies, and deferred repairs can turn a clean headline NOI into a different trailing result.
At 1.15× coverage, the property also had little room for error. A 5% reduction in scheduled rent, with expenses held fixed, would push coverage close to 1.04× in the illustrative model.
The lesson is not that apartments are weaker than industrial. It is that diversification across tenants does not protect a buyer from a weak expense assumption or an aggressive capital plan.
Three ways to solve the gap
When the property is useful but the coverage is thin, there are only a few honest levers:
Lower the price. A lower basis raises the going-in yield and reduces the loan amount at the same leverage.
Use less debt. More equity can create coverage, though it may produce a modest cash-on-cash return.
Improve the financing structure. Seller financing, a lower fixed rate, or longer amortization can help when the economics are otherwise sound.
What does not solve the gap is assuming future rent growth, perfect occupancy, or a refinance will arrive on schedule.
Our rule
A cap rate is not bankable until the NOI is real and the debt fits it.
Before treating a marketed yield as durable, we ask for:
Trailing twelve-month income and expenses
Current leases or rent roll, including concessions and delinquencies
Taxes and insurance quoted at the post-sale basis
A realistic repair and replacement reserve
Known capital work and leasing costs
Lender terms matched to the actual property and borrower
A downside case that still covers debt without heroic assumptions
Price, leverage, and loan structure can change. The first task is simpler: establish what the property earns today and how much of that income the debt consumes.
Bring us the real numbers
Draymoor Ventures reviews useful, cash-flowing multifamily and operating real estate across selected Midwest, South, and Mountain West markets. We welcome opportunities with actual operating history, a defensible basis, credible replacement users, and financing that leaves room for change.
Share an opportunity: Steven@DraymoorVentures.com
Source and data note
The two examples are drawn from publicly marketed offerings reviewed by Draymoor Ventures in September 2026. Property and broker identities are intentionally generalized.
All financing terms are illustrative. Listing figures were not independently verified, and no broker or lender was contacted for this article.