Underwrite
Leverage vs all-cash: cash-on-cash side by side
Leverage can lift CoC or wreck it when the debt is expensive. Same NOI, two capital stacks: all-cash vs financed. Enter price, NOI, down payment, and loan terms; see CoC both ways and the spread - so "use as much debt as possible" stops being a slogan.
Assumptions
Returns stack
- All-cash CoC
- —
- Financed CoC
- —
- Leverage spread
- —
- Monthly PI
- —
When to use
Deciding down-payment size; checking whether a rate still helps; explaining to a partner why skinny-down isn't free yield.
When not to
Higher CoC can mean higher risk (rate resets, vacancy). And forgetting closing costs inflates financed CoC.
Assumptions: All-cash CoC = NOI ÷ price when profit equals NOI. Financed: CF = NOI − debt service, CoC = CF ÷ cash invested. Not IRR or equity multiple.
Worked examples
Input
Cap-like all-cash 6% Financed CoC 10%
Output
Leverage helping (on paper)
Cheap debt vs property yield - verify with real closing costs.
Input
Same NOI · higher rate
Output
Financed CoC falls below all-cash
Expensive debt can make all-cash the better CoC story.
Common traps
- Higher CoC can mean higher risk (rate resets, vacancy).
- Forgetting closing costs inflates financed CoC.
- Not the same as IRR or equity multiple.