Help Me Understand, Loan = Quicker Growth?
So I just purchased my first property and want to brush up on a concept. Basically I rather grow quicker than slower and want to find out if taking this "loan" will be conducive to that goal. Im sure that it will, but how much so? I'm new and am having trouble quantifying it.
So for sake of understanding the theory I'll keep it as simple as I can.
I just bought a house for $115,000 to use as a rental. I am putting 20% down on the property which is $23,000. The cash flow on this property is $280 per month.
I am happy with the return but not thrilled with the amount of money that I am sinking into the property. After closing costs and repairs it will be around $30k total. I can pay this amount no problem even though it is more than I would like to put into a property.
So I have a family member that is willing to loan me $20,000 with no interest over a ten year period. This comes to $167 a month.
So if I am looking at this correctly my cash flow should drop to +113 per month for the first ten years but I have the luxury of having the 20k to either invest or put into other investments.
Measuring my cash on cash return on the two.
Without loan: 280x12 = 3,360/30,000 = 11.2%
With loan (first 10 years): 113x12 = 1356/10,000 = 13.6%
With loan (after 10 years) 280x12 = 3,360/10,000 = 33.6%
However, lets say I get $50 dollars less a month for rent:
Without loan: 230x12 = 2,760/30,000 = 9.2%
With loan (first 10 years): 63x12 = 756/10,000 = 7.6%
With loan (after 10 years) 230x12 = 2,760/10,000 = 27.6%
Looks like getting the loan is the clear cut winner. How does this correlate to the quickness that I can buy my second rental?