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Updated over 5 years ago on . Most recent reply

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33
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9
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Christopher Nemlich
  • Las Vegas, NV
9
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33
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Leveraging Intelligently (Positive v. Negative)

Christopher Nemlich
  • Las Vegas, NV
Posted

Reading J Scott's post here got me thinking a bit deeper about when and when not to leverage. 

It's particularly relevant to me currently as I am currently self employed, so stuck with interest rates in the 6.1-6.6% range. I estimate my loan constant at 7.3%. Based on this, for any property with a cap rate >7.3% I should aim for as small of a downpayment as possible and for anything <7.3% cap rate I should put as much cash down as possible. It would be nice if it were this simple, but I don't think this properly accounts for other benefits such as interest deductions or potential appreciation gain. Would it be proper to compare the loan constant against (Cap Rate + Appreciation assumption) instead? 

Secondly, I found an article here that suggests that what starts as positive leverage through financing becomes negative leverage over time, but I'm not sure his math is correct. Any thoughts?

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