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From: mat@amdahl.UUCP (Mike Taylor)
Newsgroups: net.invest
Subject: Re: Mortgage Down Payments and Good Investments
Message-ID: <2342@amdahl.UUCP>
Date: Fri, 6-Dec-85 11:26:03 EST
Article-I.D.: amdahl.2342
Posted: Fri Dec  6 11:26:03 1985
Date-Received: Tue, 10-Dec-85 06:01:58 EST
References: <1439@decwrl.UUCP> <691@leadsv.UUCP>
Organization: Amdahl Corp, Sunnyvale CA
Lines: 39

> In article <1439@decwrl.UUCP>, marks@yogi.DEC writes:
> > 
> >  I have a large amount of equity in my present home, and was
> > planning on putting most of it down on my new home.
> > 
> > Many people have been telling me, however, that it is unwise to put
> > most of my money into a new house.
> > 
> > If I put 20% down and invest the rest of my money someplace else, where
> > and how should I invest it?  Why shouldn't I put it all into
> > a down payment on my new house?
> > 
> > Thanks for the advice.
> 
> How much income do you derive from equity in your house?  None.  That money
> should be invested in some way.

Absolutely true.  However, you do avoid paying interest on that money.
In order to be ahead of the game, you must invest the money to yield
more than the mortgage cost.  For an individual investor, it is quite
difficult to get yields higher than mortgage rates on investments that
include real and substantial risks.
In addition, you must consider the issue of matching maturities and
rate exposures.  If your mortgage has a variable rate, then you must
invest it in a way that will yield a higher return when mortgage rates
go up. Or if your mortgage lasts 30 years, your investment had better
yield more than the mortgage for 30 years... not easy to guarantee.
A further aspect is that of personal cash flow.  Less equity means higher
payments.  If your investments don't yield current cash, or even absorb
cash as many income property investments can, then you can end up
"property-poor" - lots of illiquid assets and no cash. Then you end up
making deals at firesale prices to bail out.
As a last point, if things go sour (layoffs, other bad news) then a smaller
house payment means your minimum cash flow is smaller.  You also are more
likely to realise some cash out of your house if it "rains real hard."
-- 
Mike Taylor                        ...!{ihnp4,hplabs,amd,sun}!amdahl!mat

[ This may not reflect my opinion, let alone anyone else's.  ]