Leveraging is using other peoples money for investments so you use less of your own money. By using other peoples money, you can buy more properties and increase your returns on the total cash invested. If you pay cash capital cash advance alexandria va getting a loan, your returns decrease dramatically, and all the benefits of owning rental properties decrease as well.
Why do you get a higher return on your money when you get a loan instead of paying cash for a rental. I am going to use some capital cash advance alexandria va figures to outline the benefits of leveraging your money. 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 return 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.
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