Which one is the better deal?

Question

Hey guys. Buying a house.

5% down, 30 year.

Option 1:

15k upfront, 2.1k/month for 30 years

Option 2:

19k upfront, 2k/month for 30 years

Whats the better deal? How do I figure out? ROI? IRR? Thanks.

Account Closed · Answer

@Kelvin He

So for $100 more per month you get to keep $4K more in your pocket. I would lean toward that one, however it depends on your cash flow and goals. Do you want more equity, or more $ in your pocket now to re-invest? Also, from a cash flow standpoint, that $100 could make or break a deal.

So my recommendation would be to project the property using both term options. To start, calculate your:

1. Cash flow

2. Cash on Cash Return (%)

Kelvin He · Answer

Cash on cash return for option 1: 0%

https://gyazo.com/f8b421fbd596bad7987a13cde460244a

Cash on cash return for option 2: 0.53%

https://gyazo.com/da7321daf421e9ee51341f4563becb2d

LOL. Makes the deal look TERRIBLE. But, as mentioned above, I am doing this for appreciation/equity, and as a place to live for less than how much it would cost to live in an apartment ($1000 [apt] vs. $600 [house]. I never expected to really get much cash flow.

Kelvin He · Answer

No, its for me to live in. Also renting it out to some friends at the same time.

The expected expenses is going to be -$700 [option 1], -$600 [option 2] (I get to live there though)

Once we all move out maybe in a year, I expect the cash flow to be break-even [option 1], +$100 [option 2]

All of this is just an equity/appreciation play.

Joe Villeneuve · Answer

IS this a rental?  What's the cash flow in either case?  Can't answer this question without that info.