Cashflow or Cash on Cash Return?

[Jonathan Edmund]

I am looking at buying a property in my market. It's just an efficiency condo and it's currently rented for $700 a month. Tenant in place through May 2021. I ran my calculations on it and if I purchase it and put 20% down, I'm looking at a $167 a month cashflow after factoring in taxes, mortgage, HOA fee and costs that vary. But my cash on cash return will be 19%.

If I pay cash for the unit, I can cashflor $329 a month but my cash on cash return is only 8.5%. Since rates are so low right now, would it make more sense to finance it and keep my cash so I can try to get another unit sooner, or is there a good reason why going cash makes more sense in this case?

[Joe Villeneuve]

You're using the wrong numbers to make your comparison.  Trying to compare % to a $$$ number is like trying to compare apples to oranges.  Aside from the fact percentages tell you nothing of value.

There is nothing to compare here.  The two numbers you need to look at are not in conflict with eachother.  The two numbers you need to use work together.

How much cash flow do you have, and how many years it will take you to recover your cash.  The higher cash flow by paying all cash isn't a plus.  By paying 100%, it will take you much longer to recover all the cash you spent, and that added cash flow you think you are getting is an illusion.  When the tenant pays your mortgage, and you only have to come up with 20% of the money in cash, you can recover your cash much faster.  That added cash flow you're getting, you are paying for.