You find a place in Kettering, OH. The medical practitioner will sign a new lease at closing (i.e. it is a sale leaseback). The lease will be for ten years. It is listed at $1,150,000, but you haggle the price down to a 8% acquisition cap rate. In year one you will receive $84,000 in rent. You must front all the expenses below. However, the tenant will reimburse you for everything except repairs. Expenses in year one are 2,300 for insurance, 3,700 for snow removal, 1,500 in repairs, and 18,000 in real estate taxes (use the rent and expenses to calculate NOI in order to figure out your purchase price). You project you will need 7,000 of capex every 3 years. Rent will increase by 1.75% and expenses/capex at 2.5%. For financing, you will purchase at a 70% loan to value. The interest rate will be 6.25%. The loan will be amortized over 25 years. Acquisition closing costs will be 1.75% and disposition closing costs will be 5%. You will sell at the end of year 7 at an 8.5% cap rate. The property is 4,500 sq ft.

What is the percentage difference between all-equity and leveraged IRR?

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