Using All Cash Vs. Conventional Financing with Buy and Hold RE

A lot of experienced investors and non-experienced investors use large sums of cash to obtain properties at great discounts (70-80 cents on the dollar) via direct sales of pocket listings or auctions.  Paying cash commands respect and is seen as a more reliable deal which is the reason for the discount on the property.  The following will analyze the numbers behind this strategy and compare it to a typical 20% down payment conventional deal. 

Scenario A: All Cash
Market Value: $100,000
Purchase Price = Money in the Deal: $75,000
Annual Cash Flow: $12,000 (assuming 1% rule)
Cash on Cash Return: 12/75 = 16%

Scenario B: Typical 20% conventional deal
Market Value = Purchase Price: $100,000
Money in the Deal (20%): $20,000
Annual Cash Flow: 12 x $1,000-540 = $5,520 (assuming 1% rule)
Cash on Cash Return: 5520/20,000 =27.6%

Conclusion: Using all cash strategy would yield 11.6% less return on principal investment.