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Buyer Considerations – Best Way to Come Up with a Down Payment

August 6, 2014 by Joe McAuliffe

Buyer Considerations – Best Way to Come Up with a Down Payment

Although many first-time home buyers would like achieve financial security with a real estate investment, it can be a major hurdle to come up with the required down payment. Why not invest in a home site first, and then build a home? Consider the following example:

  • Purchase a Home Site
    1. $10,500    Home Site Purchase Price

    – $2,100    20% Down Payment

                       $8,400     Amount Financed at 7% Interest Over 3 Years

  • Build a New Home Using Appreciated Equity From Home Site
    1. With the scarcity of developed vacant land available, high demand has caused prices to skyrocket, and the home site purchased 3 years ago for $10,500 is now worth $22,500. The appreciated land can now be used as the down payment for a home purchased with a mortgage.
    2. $150,000 – Cost to Build Modest 1,500sqft Home at $100/sqft
    3. 10% Down Payment of $15,000 is covered by $22,500 Equity in Home Site
  • Real Estate Investment Potential
    1. At a 5% per year appreciation rate, the $150,000 home purchased in 2017 home site using the home site’s appreciated equity value as the down payment, would be worth almost $400,000 in 20 years. Compare this return to any 401K.

Conclusion – Investing only $2,100 in a down payment today could yield almost $400,000 by 2037. Now that’s financial security!

Filed Under: Buyer Considerations, Cup O' Joe

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Managing Partner, is one of the top business consulting professionals in Florida. He has worked with Fortune Magazine, Oracle, Network Solutions, Computer Associates, and Lawyers.com. Some of MET’s current clients include Christie’s & Illustrated Properties, Coldwell Banker, Merrill Lynch, Smith Barney and Sotheby’s.
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