You’ve done well saving money, and you now have a substantial amount to invest in—something. You can purchase certificates of deposit or dip your toe in the stock market, but you’re also considering putting the money down as a deposit on a home.

Is it a good idea, though? Aside from giving you a nice place to live that you can call your own, will your hard-earned cash grow the way it would in a financial institution?

Fertilize your investment

Something that many people don’t realize is that if you use your savings to purchase a home, you are actually leveraging the mortgage to grow your money at a much faster rate. Let me explain.

Suppose you have $15,000 to invest. You do so wisely in some financial instrument, and over time you earn a 5% return—$750. Not too shabby.

Now suppose you take that same $15,000 and use it as a downpayment on a $300,000 condominium. Over time your home increases in value 5%, to $315,000. See what happened? Using the value of the condo you bought, you just earned a return of 100% on your original investment!

OK, there’s a lot of fine print here: you had closing costs, you paid property taxes and insurance, and you spent money maintaining your new castle, so your profit is nowhere near 100%. But whatever it is, it’s a heck of a lot more than 5% or whatever return you may have received from playing the stock market, unless you had invested in Microsoft when Bill Gates was barely old enough to buy a beer.

Take the long view

Here’s an actual story of a couple who moved to New York from Colorado in the early 1980s. Their parents encouraged them to rent and save their money, but they took a risk and bought a townhome for $75,000 in Staten Island, probably putting down about $3,750 or so.

Three years later the couple sold the condo for about $85,000, relocated to Edison, NJ and bought a bi-level for $119,000. It was a financial stretch for them, but they were confident.

Eight years later the couple moved again, to South Brunswick. They sold their bi-level for $195,000, and with a bit of help from their parents bought a brand-new colonial for $300,000. Again it was a financial stretch, but worth it.

Today that house in South Brunswick can easily sell for over $600,000. The couple weathered two real estate busts and other financially trying times, but their original investment of $3,750 (with an additional chunk from their generous parents) yielded a return of well over 500%.

I’m not a financial analyst or a lender. Speak to one before making a financial decision that will affect your future, but consider the leveraging effect that borrowed money can have on growing your assets as you enjoy living in your own castle.

Bo Twerdowsky

Real estate agent, self-professed computer geek, grammar policeman, proud father of two. Opinionated, questioning, intolerant of stuffy sorts devoid of a sense of humor.