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Personal Finances / Buying or Selling a Home


Subject:  Re: Paying Cash for an investment property Date:  6/9/2013  3:29 PM
Author:  sykesix Number:  125481 of 128887

As other's have said, I don't think you are looking at this at quite the right way.

What you need to do is look at the net income (not considering the mortgage) divided by the value of the property. Let's say you would make $9K/year and the thing is worth $100K, or 9%. That's conceivably how much your return on investment would be if you paid cash.

Let's do a thought experiment. Let's say you borrow 100% of that 100K at 4% interest in order to get the $9K. Your return on investment is...infinity. It is free money (not county transaction cost of course. If you borrow 90%, the ROI is no longer infinity, but it is still much higher than 9%. 80% it is less, but still higher than 9%, And so.

So as long as the first calculation is higher than the cost of money, you want to borrow as much as you can.
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