If you buy a 100,000 house with cash and make 500 a month in cash flow, you are making about 6 percent cash on cash returns. Cash on cash return is the cash advance leestown rd lexington ky you are seeing on the cash you have invested into the property.
If you buy a 100,000 house and put 20 percent down, you will have a mortgage payment, but the returns on your cash invested increase because you are using much less cash.
If you are paying a 4 percent interest rate, your principal and interest payment will be about 382 (check out the bank rate mortgage calculator for calculating mortgage payments).
You are only making 118 a month cash flow after subtracting the mortgage payment, but you are making 7 percent cash on cash return due to the lower initial investment. Additional benefits of getting a loan on a rental property. Even though the cash on cash return is 7 percent, you are actually making much more than a 7 percent total return in the above scenario.
You are also paying down the principle on the loan by an average of 118 each month. That 118 equals another 7 percent return on your money that you would not have on a cash purchase.
You have more than doubled your return by getting a mortgage instead of paying cash.
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