I have a few rentals, I flip homes for a living. I am looking to get into the rental business quite a bit more, however I am having a hard time deciding which route to take.
Here are the numbers I am running. Ok so just a background on the numbers I am using. $600,000 original investment, 120,000 price of duplex, 100% occupancy(For simplicity), 0 extra expenses(for simplicity), $3000 taxes, $1200 insurance, $1400 Rental income($700 per side). Here are the 2 scenarios.
Profit Potential on 1 duplex 100% Cash
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Profit Potential on 1 duplex 50% Cash
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Assuming these 2 numbers I would be able to buy 5 duplexes with 100% cash with option #1. That would be annual profit of 62,920 or 10.5% ROI. However, the original investment would be about 10 years. Using option #2, using 50% cash I would be able to purchase 10 duplexes and would profit 93,920 a year for that same $600,000. That ROI is 15.5%. Now the question is how does the factor that I am not paying off the homes in 10 years like I am with option #1 vs having a 30 year loan on 1/2 of every duplex. To get more confusing though, I would be able to get the $600,000 back from option #2 in 6 1/2 years however I would still owe 23 years on the 30 year loans. There is a lot of factors in all of this to consider, but I wanted to get your guy's opinions.
Here are the numbers I am running. Ok so just a background on the numbers I am using. $600,000 original investment, 120,000 price of duplex, 100% occupancy(For simplicity), 0 extra expenses(for simplicity), $3000 taxes, $1200 insurance, $1400 Rental income($700 per side). Here are the 2 scenarios.
Profit Potential on 1 duplex 100% Cash
120000 | |
16,800 | |
-3016 | |
-1200 | |
12,584 | Profit per duplex |
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Profit Potential on 1 duplex 50% Cash
60,000 | |
16,800 | |
-3016 | |
-1200 | |
-3192 | loan amt |
9,392 | Profit per duplex |
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Assuming these 2 numbers I would be able to buy 5 duplexes with 100% cash with option #1. That would be annual profit of 62,920 or 10.5% ROI. However, the original investment would be about 10 years. Using option #2, using 50% cash I would be able to purchase 10 duplexes and would profit 93,920 a year for that same $600,000. That ROI is 15.5%. Now the question is how does the factor that I am not paying off the homes in 10 years like I am with option #1 vs having a 30 year loan on 1/2 of every duplex. To get more confusing though, I would be able to get the $600,000 back from option #2 in 6 1/2 years however I would still owe 23 years on the 30 year loans. There is a lot of factors in all of this to consider, but I wanted to get your guy's opinions.