I would say I would choose somewhere in between 1 and 2
Why:
I am a true believe that there should be a small cashflow from any deal. And the same time I always maximizing the leverage in terms of mortgages that I have. So 0 cashflow does not work for me personally.
I would probably create another scenario:
Scenario 1b:
Ã$1M invested, $3.5M asset, 6% CAP (yield), 80% LTV (loan-to-value) mortgage at $2.8M at 4%
$210,000 NOI (net operating income) minus
Ã$172,000 mortgage payment (of which $60,000 is principal and $112,000 interest)
Ã$72,000
`cash-flow` in theory .. Some of which will be asset management fees,
annual accounting, tax filing costs, overhead (say $20,000) and rest
upgrades (say $40,000) .. $12,000 per year or 60,000 in 5 years.
Ã20% value growth in 5 year to $4.2M due to inflation and upgrades/rental upside (4%/year on average)
ÃEquity in 5 years: $700,000 gain plus $300,000 mortgage paydown + 60,000 in cashflow = $1.06M =
Ã
Ã106% ROI (return on investment)
in 5 years ..