Cash on Cash ROI

[Corwin Hernandez]

I'm trying to help a friend understand your return on an investment and am having a little trouble and was hoping someone could give a detailed answer to this question. What would give you a better return? Buying a property with a traditional mortgage, 20% down payment amortized over 30 years or paying all cash for the property? Let's say it's a $100,000 property for easy numbers. I put these into the rental calculator and got the returns I was expecting but am having trouble explaining it. His mindset is if I have a mortgage, I'm paying more for the property overall but still getting the same rent where as he pays cash so his cash flow should be more than mine, thus his return should be higher. He is completely new to investing concepts so please explain this as simple as possible. Any help would be greatly appreciated. Thanks!

[Carl Leonard]

You need similar investments.  In your example you are comparing a 20k investment vs a 100k one.  Instead compare a one property 100k vs 5 with a 20k down payment.