How Much To Borrow

“How much to borrow” refers to how much of what you pay for your real estate investment should be debt, and how much should be cash.

Of course, in general, debt is something that you should avoid if you ever hope to become a financially independent person.

But that refers to consumer debt.  In your personal life.  You borrow money to buy something that you can’t afford, and then use your income in the future to pay for something that you have already consumed.

No, the debt we are talking about is mortgage debt, and there is a lot of misinformation about it.

People are asking themselves, “Does the value of a house usually grow faster than the interest amount that you pay on the mortgage?”

I think you will be amazed by the answer.


This will be a short episode.

But it will contain all of the information you need on the subject.

And you will remember it for a long time.

Let’s use an Example.

You buy a $400,000 house.

You pay $100,000 down.

You get a $300,000 Mortgage, 30-year fixed rate, at 5%.

Each of your 360 monthly payments will be $1,610.46, including principal and interest.

In 30 years, the total amount of interest that you will pay will be $279,967.

Your interest payments will be very high in the beginning, a total of $14,899 in the first year.

But they will decrease each year, and will be $1,280 in the final year.

So, the average amount each year will be $9,935.56.

Meanwhile, the $400,000 house will appreciate in value the historic average of 6.7%.

And that does not include the crazy amounts of appreciation the last couple of years (or the last two weeks).

But here’s the main difference to understand when you compare the interest expense and the appreciation increase.

The interest expense is mathematical, you just add the amount each year to the running total.

However, unlike the interest, the 6.7% appreciation will be compounded each year.

For instance, it will result in $26,800 increased value the first year.

But in the second year, the increase in appreciation goes up to $28,596 because the 6.7% is being applied to a new amount.

And it goes up each year.

After 30 years, the Fair Market Value of the house will be $2,798,933.

The appreciation amount is $2,398,933.

The average annual appreciation over the 30 years was $79,965.

Compare this to the average annual Mortgage interest cost of $9,325.

The difference is over $70,000 each year.

Now, let’s answer the question: “Does the value of a house usually grow faster than the interest amount that you pay on the Mortgage?”

Yes, it looks like it does.

About 8.5 times faster.

This is another Example of why most of the wealth in this country is created with Real Estate Investing.

So, when you are deciding how much to borrow, you might just want to borrow as much as you can handle in terms of the risks involved short-term, because long-term, you will be in good shape.


After Tax Cost of Debt

Compare 2 Loans

High-Priced or Low-Priced Real Estate

Buy With Cash


I touch on this same concept in more than one of my books, but the one with the most detailed information is “Best Business Entity For Real Estate Investing.”  If you would like to preview it, you can go here on this website to look at it first, use the 3D Flip Reader to look at the Contents and read the first few chapters.

The paperback is available on my Amazon Author Page, along with my other books.

And I have related Articles about real estate investing and other real estate matters from other perspectives on my LinkedIn Page.

I am also active on where I have answered over 300 questions, and they have almost 3 Million views.

If you happen to be doing, or if you are considering doing, a Section 1031 Like Kind Exchange, then you should start with a Dictionary, and I have done one, in 3 separate Blog Posts here: Part 1, Part 2, and Part 3.  And I have a lot of material for you to consider on my S1031 Exchange website.

You should always check out the credentials of anyone, like myself, who you are relying on for accurate information by looking closely at their Biography.  Here’s mine.

And if you think you might like to read one of my books, but can’t decide which one, here are four that I recommend.

how much to borrow


I am an Attorney licensed to practice in Texas, North Carolina, Virginia, and the District of Columbia.  But I am not your Attorney.  I would be honored if I were, but I am not.  Reading this Blog does not created an attorney-client relationship between us.  Internet content should not be used as a substitute for the advice of a competent Attorney admitted or authorized to practice law in your state or jurisdiction.

July 28, 2022



Submit a Comment

Your email address will not be published. Required fields are marked *