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GAWell, I think it is easy to see why you would rather invest in the market than pay down 4.8% interest on your debt. But what about option C?
Real estate grows about 5% per year on average. Well that leads me to believe that the market is superior. However, this is a common fallacy that is easily misunderstood.
If you put 20% down on a $500,000 home, you have an equity multiplier of 5. What does that mean?
This investment is leveraged while borrowing 80% of the asset price from the bank; therefore, when the real estate asset appreciates by only 5%, your equity will appreciate by 25%.
On the asset side, $500,000 turns into $525,000 (assuming 5% appreciation.) In terms of your investment, your $100,000 invested is now worth $125,000.
Whereas that same $100,000 invested in the S&P 500 would only be worth $110,000 a year from now.
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#realestate #appreciation #asset #finance #invest #debt #borrow #banks #loan #money #owner #kaplyons #captainkap
@garrettkauppila
