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Assume you acquire a property for $5,000,000 and you borrow $3,500,000 at an annual interest rate of 5%. The payments will be structured as interest
Assume you acquire a property for $5,000,000 and you borrow $3,500,000 at an annual interest rate of 5%. The payments will be structured as "interest only." For simplicity, assume that you will make annual loan payments. The property is expected to generate $400,000 per year in annual net operating income, and you expect that figure to be the minimum that the property will generate. Are you experiencing "positive leverage" through your capital structure? Why or why not?
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