Cash lender or Finance?

[Bob Romano]

Question: I have a cash lender that will finance my next deal at $225,000 at 4%. No monthly payments , he just wants his money back within 2 years . Either i refinance to cash him out or sell it at the 2 year mark, no biggie. I ran the worksheet with using his money and me putting 20% down the traditional way. The ROI is actual more when I do the 20% down than it is borrowing off of my private lender, what am I doing wrong? Shouldn't the return be more with using 100% of other peoples money?

[Immanuel Sibero]

@Bob Romano

How do you calculate YOUR ROI when you're financing the deal using all "his" money (i.e. your lender)?

You realize that your investment would be zero, so your ROI is undefined (i.e. most people call this "infinite", a result you would get from dividing a number by zero. To me "infinite" almost sounds like you make all the money in the world as in no limit... which is not the case... just my terminology hangup). The point is, on a deal with 100% OPM you would be making something out of nothing... and that's a better ROI than 10%, 100%, or 15,000% and on up...

Cheers,

Immanuel