From the course: Real Estate Analysis Foundations
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How debt impacts investment returns - Microsoft Excel Tutorial
From the course: Real Estate Analysis Foundations
How debt impacts investment returns
- Now tell me, which do you think is better? Let's say there's an investment that takes $100 to invest in, and for the $100, you get a $30 return every year, where, for the same investment, let's look at the case if you borrow 70 of the $100, but in order to borrow the $70, you have to now spend some of that income, the net income, to finance that debt. That $70 costs you $15 a year. But instead of having to put $100 in, if you borrow 70, you now only need to put $30 into the investment. For the $30 investment, you get to now keep the rest of the net income after the debt service, which is $15. In this case, which do you think is better? The first case, where you get to keep $30 for a $100 investment, versus the $15 for the $30 investment? If you're looking at pure profit dollars, well, of course, $30 is better than $15, but when you look at investments, you always got to look at how much you have to put in, right? In the first case, you have $30 for a $100 investment so you're…
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