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Here’s how you double, triple, or even quadruple your rate of return (ROR) on your investments 

Mark’s Market Update – 2/23/2023

It’s called “leverage”. The mistake that a lot of new homebuyers (and seasoned homebuyers) make is putting too much money down when they buy a home. This is often due to wanting “the lowest payment” or, to get rid of mortgage insurance.  

If you buy a $400,000 home and put 20% down ($80,000) and the home appreciates 5% in one year (moving in value from $400,000 to $420,000) – your rate of return on your initial cash investment is pretty good – it’s 25%! ($20,000 gain divided by $80,000 investment = 25% ROR in the first year).

Here’s the secret, though. If you put 5% down on that same home ($20,000) – and the home appreciates 5% in one year – your initial cash investment just earned a 100% rate of return. 100%. If the home appreciates 5% the next year – then your cash investment just earned a rate of return of 200%!   

Not only that – when you consider that mortgage insurance for most homeowners is a fraction of what it used to be back when (read: When your parents bought a home using mortgage insurance) – putting more money down to get rid of mortgage insurance just isn’t as good of a play as it used to be.  

Here’s the secret (and why you never use a “transactional” lender – a big box bank or someone who doesn’t look at your plans each year and ask what you want to do five years down the road, or worse, “because they’re cheap”) – they are My Three Rules To help you Build Wealth:

  1. Put the minimum amount of money down
  2. That you can get approved for
  3. That doesn’t keep you up late at night worrying about the decision you just made

That’s it. If you do it this way – you’ll maximize your rate of return on your cash investment and keep your money available for other purposes (buying another home/investment property, other financial investments, or just keeping the money available).    

In other news

FHA has decreased its monthly mortgage insurance premium from .85% to .50%. This is actually a good move – and long overdue considering how flush with cash the FHA insurance fund is right now. This makes FHA loans a more affordable AND good alternative to a conventional loan – especially if your credit scores aren’t as good as you’d like them to be.  

Rates are up as a whole: Due to additional concerns that the Fed may not be close to winding down their inflation fight and may be due for additional (and larger than originally expected rate increases – mortgage rates have shifted upward by about .5% and are now closer to 6.5% to 6.75%.  

As always – call me. I’ll help you build generational wealth and follow me on Instagram: @markthelender