How the cost of money affects investment - real example

[Aaron Helmholdt]

I am a long time reader of biggerpockets but a new contributing member. This past August I bought my first property - an owner occupied duplex with an FHA loan. What I am struggling to understand is how the cost of money affects your investment. Obviously, if you pay more up front you will cash flow better versus mortgaging a larger portion. After the 50% rule your cash flow varies so greatly depending on how you finance the property. How do you account for this in determining how successful an investment is? Here is my real life example of my purchase.

155,000 using an FHA loan with approximately 5,500 down (I was able to negotiate the seller to cover closing costs.)

The property is a duplex with 3br 2ba each side with current rent at $850 but will be raised to market values closer to $900.

At $850 per unit or $1700 gross total, the 50% rule says that I will cash flow at about $124 per month after my PI of $726. I will admit that I purchased this pretty close to retail value because it was important to find a great place for my family to live in as well as an investment for me. But with a cash investment of about $5,500 I am very happy with a positive cash flow. However, using the 50% rule I know many investors here would require better cash flow.

Please share insights and opinions on how the cost of money affects investments and on the property itself. Thank you!