Putting a large down payment towards PRIMARY home?

Question

This might be a dumb question, but I’m still learning so I really appreciate your help and patience!

I know it doesn’t make sense to put 150K down payment of your own cash towards a 500K investment property. But, what if it is your PRIMARY home that you plan to stay in for the long run? Does it make sense to do such a large down payment?

Tim Herman · Answer

@Nikki Closser Mathematically it's better to put the least down. With historically low interest rates. Most investors are looking for 10% cash on cash. On a personal residence you are only saving 3% on what you put down. You will make a 7% return. Now piece of mind has some value. I have my personal residence paid for.

So lets do a mind experiment. You put 20% down or 100k on a property and buy 2 hypothetical 100k properties with 25% down.  Rents are 1k per month. The second is putting 150k down. Payment is $1475 pi. 30 years you will have 500k house paid off.

Now the other calculation. 100k down=$1687 payment. Using the 50% rule where 50% goes to expenses and 50% to mortgage and profit.  75k mortgage is $358. So a $142 profit per house. Total cash flow $284 per month. Apply that to your mortgage $1687-$284=$1403 mortgage payment.  In 30 years you will have a paid off 500k house and 2 100k houses.  If you add inflation at 2% annually Each 100k grows to 181k. So you would be 360k better.