Leveraged Return Example
Buy home for $100’000
20% down $20’000
Borrow $80’000
Average Yearly Market Increase of 5% $105’000 (property worth – 1 year later)
You made a $5’000.00 profit on a $20’000.00 down payment (4 years you are paid back).
Conversely the Stock Market
The same $20’000 does not create an additional $180’000 that is leveraged:
In the stock market, your investment is only the $20’000 you have to invest. If you get a 5% return in a year, your profit will $1000.
Down Payment & Monthly Payments
The monthly money you pay on a home is like putting money into a savings account, but with better interest.
Meaning: increasing the leverage, increases the profit made on money that isn’t yours. The more house you purchase, the higher your leveraged investment increases. The greatest profit made will not be made with your money, but the lender’s money.
Money you owe – isn’t yours; but the equity on it is!