“Less is more” when buying Real Estate. You do not get the same ROI (return on investment) with putting more money down to purchase a home compared to monthly payment savings you get in return.
Take a $500k purchase. You can put 5% down ($25,000) or you can put 20% down ($75,000). By putting the 20% down it will drop your PI payment (6.49% rate) $819.91/mo. That is a nice car payment, right? BUT… if you put $75,000 out of pocket today at closing to save $819.91/mo in your payment… do you know how years it will take saving $819.91/mo to get back the $75,000 you put down? Almost 8 YEARS….
If you think the rates will not come down for at least 10 years, then that might be a wise investment. Otherwise, if you are expecting the rates to come down sooner than that, then you are giving up a big compounding gain of investing that $75,000.
If you invested that $75,000 in the market with an average return of 10% per year, you would be giving up that compounding and growing to $146,143.
Bottom line, if you want to know what the wealthy do to continue to grow their wealth… they own less and leverage their wealth to maximize the compounding effect.
“Compound interest is the eighth wonder of the world. He who understands, earns it. He who doesn’t, pays it.” – Albert Einstein
Before You Put 20% Down, Run These Numbers...
Brian Tutt
