I am analyzing using higher leverage to acquire more properties and want to put only 15% down. Since I can acquire off market deals with 15-17% cap rates I have no problem paying a premium for high interest rate with a smaller down payment. The goal is to attain as much real estate with the lease amount of capital as possible
. The interest on a 30 year fixed mortgage on a quadplex is about 4.75 % but I am looking to get a 30 year fixed loan at 7% with 15% down.
Many people will shy away from a 7% interest rate knowing they can get 4.75% with a higher down payment. Now the higher down payment takes away the ability for me to acquire more properties therefore I can pay the higher rate and maximize leverage. Most investors will buy a property with an 8-9% and put 25% down but if you can attain a 15-16 % cap why not pay a higher interest rate and leverage the capital as much as possible?
Rent roll $3200
Costs of repositioning property $25,000
Potential rent roll $4,600
After repositioning the property I can attain a 16-17% cap rate
Would you leverage $35,000 to buy this property and pay 7% interest knowing your Invesment will yield a 16 % cap?
I have to say yes considering the numbers but is here something I am missing ?
Those are great cap rates. Surprised you are getting those cap rates in Long Island. All I can say is make sure you have plenty of cash reserves just in case your tenants do not pay or there is a catastrophic repair that will be needed.
This property is in Tampa,a 15 % cap in Long Island would be a miracle. After I reposition the property I will address all issues/repairs.