Higher Cashflow or Higher Cash on Cash?

[Christopher Derr]

Property $40,0000 + $3,000 Rehab ($850 Closing) - Rent conservative $700/mo - optimistic $750/mo   (its a 3/1 I have a 2/1 close that I rent for $700 right now)


Commercial loan from portfolio lender that will finance upto 85% of broker price option of $50,000 (terms 25yr at 4.35%) as long as DSCR is over 1.25 its over so no issue.

Would you rather

A. put 20% down and finance $32,000 ($11,850 in) with $244/mo cashflow on $700 

$700/mo

- $175 mort

- $75 tax

- $56 prop man (8%) (I pay 6% because every property over 4 with them drops from 8% to 6%)

- $45 ins

- $70 repair (10%)

- $35 vac (5%) - property management is local and averages 2-3%

= $244 ($174 if you figure 10% capex, but some people only do 5% repair then, which would be $209 cash flow)

$2,928/$11,850 = 24% cash on cash

or

B. put 0% down finance $40,000 ($3,850 in) with $200/mo cashflow on $700

$700/mo

- $219 mortgage

- $75 tax

- $56 property management (8%) (I pay 6% because every property over 4 with them drops from 8% to 6%)

- $45 ins

- $70 repair (10%)

- $35 vac (5%) - property management is local and averages 2-3% usually 20-30 people per open house I rented my last house in 4 days

= $200 ($130 if you figure 10% capex, but some people only do 5% repair then, which would be $165 cash flow)

$2,400/$3,850 = 68% cash on cash

I live 25 minutes away,  I like the cashflow higher but I have a good W2 job that allows me to invest $2,000 a month of my own income into real estate plus cashflow from properties is all re-invested.  My thought is lower cashflow is ok because I could save that $8,000 finance and buy one or two more properties and then if those are also cashflowing then I am even further ahead. 

I'm truly just working on building my portfolio, but I don't want to over leverage and get myself in trouble either.  Goal is always to be at 80% or better equity on a property with over $150 cashflow on 25yr mortgages. 

Are my numbers o.k?  Would you pull the trigger and which option? 

Thanks in advance

[Jason D.]

Option "B", I always want more cash. Just think this way with the extra $8k, you could buy 2 more properties like the one you have. That extra money l, reinvested, will make more than $50/month cashflow.