Infinity, that’s unfair that you mention leverage because counting the additional gain without considering the additional risk wouldnt be a good comparison. Investors can also leverage stocks, but ignoring that. Equities are more liquid, more diversified and as Nerdy mentioned easier to manage. The loan being taken out (lets say 20% was put down, so 80K) will be a fixed principle amount and this is important because the interest you pay today will be less as time goes by while on the other hand the invested 80K will most likely be growing and growing at a most likely higher rate than the interest rate. Also just because you dont buy 100% of the home does not mean you miss out on real estate appreciation. The loan value stays the same and if the investor buys the house 100% then that 80k will only grow at a fixed NOMINAL rate = to the interest the investor would have had - any refi gains the investor could have done during the life of the loan.
i am using actual data…You invest at hedge funds, mutual funds or market index you get some kind of return…then market hits recession and everything tanks.
Same with real estate… Just look at Tishman, SL Green, Blackstone REPE, Blackrock REPE, etc…their returns are x and all goes down in recession. You’re able to use leverage, BECAUSE real estate is cash flow positive investment from both income and price appreciation. So, it’s part of the game.
They all go up together and down together.
Nerdy, as i mentioned 32% is through the “real estate boom” of late 70s, 80s and 90s and early 2000’s and current. LOL basically most of the years in the past 30-40 years…why?? SIMPLE…Population increasing and Earth ain’t making more land and the big cities only get bigger.
So going back to my point of never putting 100% down for a house. You invest the 20K with a 5x LTV and you invest the rest in a diversified port (You wont have any leverage if you buy the entire house) so you’re contradicting yourself a bit there. You also can’t bring in securitized real estate. The original question seems to be for a direct investment in real estate. You can’t tell me that the additional 80K will serve better invested in a real asset like real estate unless you believe that stocks wil not beat the fixed interest rate in nominal terms. Any price appreciation of the property will be captured by the investor, so even if real estate outperformed stocks somehow the investor will still get the full benefits as long as the stocks beat the interest rate.
my apologies…I misread…
I initially thought you said that you would never put any money…
Yes, I would NEVER put down 100% of my money for a house or commercial RE.
Yes, use leverage and invest the rest in other projects or in, as you said, market index.
Isn’t this just an opportunity cost question?
You do with the cash what maximizes your long-term net worth, done. That you want a house is a distraction, that may or may not be the best use of the cash. I can make 15% in the market, and pay house payments and the 3% interest with that (15% made > 3% lost).
yep yep yep. always pay minimum amount/down if rates are cheap!
Yea, I would say put down the minimum amount needed for the best terms (lower interest rate and no PMI fees) then invest the rest elsewhere.
I would prefer to deposit the minimum amount required to purchase this property and borrow the remaining amount from the Bank. Let’s say Bank requires 20% minimum deposit, then I will deposit $20,000 and borrow $80,000 from the Bank to purchase this property for $100,000. Now I have $80,000 remaining in Cash with me which can be used to diversify my portfolio and hence diversify my risk. If I had purchased the property with $100,000 cash, It’s difficult to diversify my portfolio as Banks usually don’t lend 100% of the investment amount for any future investment I might decide to do.