An investor would like to purchase a new apartment building for $1,900,000. An 80% loan can be obtained at 6.25% for 25 years. The first years NOI is expected to be $195,000 and increase 4% annually. The cap rate at the end of the holding period is expected to be 8.5%. The building and improvements represent 80% of the purchase price. The depreciation period will be 39 years. The property will be sold at the end of 5 years. The individual tax rate is 33% and the capital gains tax rate is 20%.

c) Does the loan offer favorable financial leverage? (explain your answer)