Question
Example on purchasing property with cash versus financing Assumptions: Property Purchase Price: $500,000 Monthly Gross Revenue: $7,000 Monthly Operating Expense: $2,500 Investors Tax Rate: 30%
Example on purchasing property with cash versus financing
Assumptions:
Property Purchase Price: $500,000
Monthly Gross Revenue: $7,000
Monthly Operating Expense: $2,500
Investors Tax Rate: 30%
Investor U (unleveraged): Pays all cash
Investor L (leveraged): Pays 20% down and takes out a loan (mortgage) for the balance.
Loan terms 30 years, 8% interest rate.
What is the after tax return for each investor?
Investor U Unleveraged (Pays with all cash)
Cash investment at time of purchase =
Gross Revenue
-OPE
EBIT
-Interest
EBT
Taxes (30%)
NI
-Principal
NI after Prin Pmt
After tax return = Year end CF/Initial Investment
Investor L - Leveraged
Cash investment at time of purchase =
Gross Revenue
-OPE
EBIT
-Interest
EBT
Taxes (30%)
NI
-Principal
NI after Prin Pmt
After tax return = Year end CF/Initial Investment
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