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
- $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
- 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.
- $150,000 – Cost to Build Modest 1,500sqft Home at $100/sqft
- 10% Down Payment of $15,000 is covered by $22,500 Equity in Home Site
- Real Estate Investment Potential
- 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!