What Gives Better Returns, Cash or Leverage? Well, That Depends...

All-cash or debt? The answer to this depends on what return metrics you are looking for and the specifics of the property being considered. In this video, Michael shows you exactly how to analyze a property and establish what financing strategy works best for different deals. --- Transcript   Michael: Hey, everybody, welcome to the remote real estate investor. My name is Michael Albaum and today I'm joined by   Tom: Tom Schneider.   Emil: Emil Shour.   Michael: And on today's episode, we're going to be talking about some of the different ways to evaluate properties and determine whether or not it makes sense to purchase them with debt or with all cash. So let's get into it.   Alright guys, so Pierre and I were chatting last night, and we were doing some evaluation on different types of properties. And what we were noticing is that some properties are better purchased with debt, and others all cash, have you come across the same thing?   Emil: I have, when you, you actually pointed that out? When we were I think doing some type of video, like how to analyze a property, and we're looking at different properties. And that came up where I didn't even realize that that was a thing, really. But you're right, in that some properties, the cash on cash, debt won't always juice the cash on cash return.   Tom: Yeah, I mean, just the return profile can can shift quite a bit with leverage leverage. So you know, obviously, increasing your loan to value ratio is going to would be a like, more aggressive thing to do. So if there's like changes in the value of the home, you know, by having a you know, by getting as much debt as possible, there's, you know, risk of the value of the home getting to the other side, which would be like, deemed underwater.   And then on the actual yield side. You know, depending on how much cash flow you want to make in a month, if you're using all cash to buy, you're going to have much more cash flow, but it's, you know, obviously, a higher upfront costs, gosh, I don't like him using the word obviously, all the time. It's a good good feedback from from Pierre because…   Michael: It's not obvious Tom.   Tom: It's not obvious. So anyways, it's a different return profile. And it depends on your risk tolerance, and where you are in your kind of time horizon of if you're planning to, you know, need to live off the cash flow, or all that kind of good stuff. So go ahead, Michael.   Michael: Depending on your strategy for investing is often going to dictate what types of properties you want to be looking at, and then also how you want to be purchasing those properties. So for anybody listening to this podcast, we're actually going to be doing on the doing a screen share here in a minute, and showing some visuals about how I go through the property analysis section, and determine whether or not this property is best fit for an all cash purchase, or a finance purchase.   So for those of you listening at home, or listening on the road, or not watching the YouTube version of this, the list price is 75,000. The current rent on it is $975 a month. And what I'm gonna be doing is walking through just how to evaluate this property, but also how to look at some of the different ways to purchase the property.   And what I mean by that is Tom, Emil, and I could all be looking the exact same property. And depending on how we purchased it, Tom could use all debt, Emil could use 50% financing, and I could use 20, or rather 80% financing with a 20% down payment, the performance of that exact same property with the same income and expenses could look vastly different for the three of us.   And so what I'm gonna do is I'm going to scroll down the page and click on financials. And then I'm going to start playing around with some of the assumptions here. And the first thing I like to do is put the down payment up to 100%, which is significant, or rather indicative of an all cash purchase. And for those of you following just liste