You have purchased a property with NOI of $1,000,000 at a cap rate of 6%. To finance the acquisition of the property, you have two choices:

A first mortgage lender will lend you up to 70% of the value at a rate of 2.5% based on a 30-year amortization, monthly pay. The lender will also permit you to borrow up to 25% of your equity via a mezzanine loan with an interest of 7%, interest only, provided the overall DSCR does not fall below 1.50X; or,

The lender will provide financing up to 75% of the value at a rate of 2.625%. Payments are also monthly based on a 30-year payout.

Determine the net cash flow to the owner under both scenarios.

Which proposal would you select?