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How Financing options affect your returns

Compared to many of you, I’m a newer investor and ask myself the question frequently: Should I get quicker amortizing loans and pay them off sooner, or should I stretch them out in order to generate the best returns now? The decision on reducing debt and maximizing returns are personal ones and will vary by our clients’ goals and risk tolerance. Our goal is to advise the people that we work with in the best possible way, and also use to this advice for our personal investment decisions. In this month’s newsletter, we’re going to compare different loan options (paying cash, using bank loan, or using agency loan) to see how they affect these key return metrics that most people use:

  1. Cash on Cash

  2. Internal Rate of Return

  3. Return on Equity

  4. Equity Multiple

The #1 thing that stood out is that short term changes don’t affect long term results as much as what we may think. You can still have a good investment even if all three of these things happen, especially when you compare this to other investment alternatives. Even if there’s chaos for a bit, things will still turn out alright if we keep our eye on the ball. So the lesson learned in all of this is to think long term, invest in good assets and focus on operations. Be sure and reach out to us if there’s anything that we can do for you!

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