Borrowing 60% lifts the return by just 0.31%p
A 5.20% cap rate less a 4.74% lending rate leaves 0.46%p. When that gap is thin, piling on debt moves the return almost nowhere.
Conditions used in the video
- Purchase price
- ₩17bn
- Gross floor area
- 3,000 pyeong
- Rent
- ₩36,100 per pyeong
- Vacancy rate
- 15%
- Operating expense ratio
- 20%
- Acquisition cost ratio
- 4.6%
- Lending rate
- 4.74%
Results
- Cap rate
- 5.20%
- Lending rate
- 4.74%
- Leverage spread
- 0.46%p
- Cash-on-cash return (no debt)
- 4.97%
- Cash-on-cash return (60% LTV)
- 5.28%
- Gain from borrowing
- 0.31%p
At a glance
The difference between them is the leverage spread. It has to be positive for borrowing to be worth anything.
- Cap rate5.20%
- Lending rate4.74%
- Leverage spread0.46%p
this is all that is left
Cash-on-cash return on the same property bought outright and bought with 60% debt.
- No debt4.97%
- 30% LTV5.06%
- 60% LTV5.28%
borrowing 60% bought you 0.31%p
Why it works this way
People assessing an income property often compute only the rent and the vacancy rate. Put in the rent per pyeong and the vacancy percentage and out comes a yield. One decisive thing is missing.
The return the asset itself generates is the cap rate: annual net operating income divided by the purchase price, the property's own strength before any borrowing. On these conditions it comes to 5.20%.
From that you subtract the lending rate. Logistics centre mortgages run at 4.74%, roughly 0.7%p above office. 5.20 less 4.74 leaves 0.46%p. That is the leverage spread.
What the borrowed money earns has to exceed what it costs in interest.
- Cap rate5.20%
- − lending rate4.74%
- = spread0.46%p
Positive, and debt lifts the return; negative, and every won borrowed costs you. 0.46%p is positive, but exceedingly thin.
The numbers show plainly what a thin spread does. With no debt at all the cash-on-cash return is 4.97%. At 60% LTV it becomes 5.28%. You replaced over half your own money with borrowed money and the return rose 0.31%p.
Leverage amplifies the spread by the equity ratio. When there is only 0.46%p to amplify, no multiple makes it large. And the 4.6% of acquisition costs, which land on your equity, cancel out much of even that small gain.
Turn the spread negative and borrowing lowers your return instead. Raise the operating expense ratio to 25% in the calculator and the cap rate falls to 4.87%, below the lending rate. From there, more debt makes things worse.
So the thing to check before viewing a property is not the rent. It is the cap rate minus the lending rate. That number decides whether debt is a weapon or a weight in this particular investment.
One more thing: the rent, vacancy rate and lending rate here are actual H1 2026 figures for capital-area logistics centres. The spread moves as the market moves, so run it again in the calculator on conditions you have verified yourself.
The legal basis
Drawn from government announcements and the statutes themselves as primary sources, covering only the relevant part.
Market figures (capital-area logistics centres, H1 2026)
In force H1 2026
Ambient rent of ₩36,100 per pyeong, 15% vacancy, and a 4.74% logistics centre mortgage rate. Logistics centre lending runs roughly 0.7%p above office.
What this means
These are market figures, not rules. They shift each quarter, so check the reference date and recompute on current conditions.
Run it on your own numbers
The calculator opens with these conditions already filled in. Change the figures and your own case comes straight out.
Open the Property Investment Yield
Frequently asked
What is the leverage spread?
The cap rate less the lending rate, which is the difference between what the asset earns and what the borrowed money costs. Positive, and debt raises your return; negative, and it lowers it.
Isn't 0.46%p still a gain?
It is. But borrowing all the way to 60% buys you 0.31%p. For that you take on the repayment burden and the risk of rates rising, and get very little back. A 0.5%p rise in rates alone flips the spread negative.
Why do acquisition costs change the result?
Acquisition tax and agent fees are paid out of your own money, not the loan. They enlarge the denominator of the cash-on-cash return, so the return falls. This calculation reflects 4.6%.
What if the rent rises?
The cap rate rises and the spread widens. Raise the rent in the calculator and you see the leverage effect grow immediately. Conversely, higher vacancy or operating costs narrow the spread, and past a point it turns negative.
Didn't the video say 0.08%p?
That figure was produced before the calculator existed and does not match the current computation. Put the same conditions into the calculator and it returns 0.31%p, which is what this page and the calculator both use. The conclusion, that heavy borrowing barely moves the return, holds on either number.
Results are estimates based on the inputs and on the rules as at the stated date. They may differ from a lender's actual assessment, and the rules change often. Take professional advice before any decision that matters.