Answer:
James will lose money, since his earnings will be lower than the interest that he must pay.
Explanation:
The capitalization (cap) rate is a ratio calculated by dividing the net operating income over the property asset value.
For example, if James is purchasing the property at $100,000, his net earning will be $7,500 per year (cap rate of 7.5%), but he will have to $8,000 in interests for the property. The interests are higher than the earnings, therefore the leverage is negative.
