The answer to this question is actually quite simple, but because it's been asked so often, I've compiled this article to share next time.

People who can buy a house with cash

First, if you can buy a house outright, this topic ends here. However, even if you can buy a house outright, I still recommend taking out a loan. Imagine you have 1 million yuan. Buying a 1 million yuan house outright is different from paying a 20% down payment and taking out an 800,000 yuan loan. You still own the house, but you have an extra 800,000 yuan that you can use for investment. To give an extreme example, if you have a very high loan amount (of course, most people's limit is 670,000 yuan, the reasons for which will not be discussed), you could easily buy five 1 million yuan houses.

Why calculate it this way? This involves the rate of return. A house worth 1 million, assuming it appreciates by 5% annually, means an investment of 1 million yields a profit of 50,000, a 5% return. What about buying 5 houses? The investment is still 1 million, but if your house appreciates by 250,000, the return is 250,000. This only calculates property appreciation, not rental income or other returns. Of course, 25% isn't the pure return rate; it also includes loan interest. If we assume an interest rate of 4% (now almost 5%), a 4 million loan would incur an annual interest of 160,000. The return rate would still be 9%.

Even though interest rates keep rising due to interest rate hikes, the rental income from four houses (one of which you live in yourself) is still much higher than the investment in a single house.

People who can only buy a house with a loan

The calculation method for mortgage loans is clearer because there are some handling fees involved in the loan itself. Although they are not much, they still affect income. If it is a loan, you will have to pay these fees.

Suppose you have 300,000 yuan and buy a house worth 1 million yuan. Should you make a down payment of 200,000 yuan or 300,000 yuan? My answer is 200,000 yuan, for reasons similar to those above.

If a house worth 1 million appreciates to 1.05 million in a year, with an interest rate of 4%:

• The return on a down payment of 200,000 is: 5 – 80 * 0.04 / 20 = 9% (interest 3.2%)
• The return on a down payment of 300,000 is: 5 – 70 * 0.04 / 30 = 7.3% (interest rate of 2.8%)

Moreover, the down payment is 200,000, and the return on the remaining 100,000 investment hasn't even been calculated. If the return is less than 4% (0.4/10), it's worth reconsidering. However, in this era where cash is king, there are many things you can do with cash, such as: (renting out advertising space for unsuspecting clients).

Conclusion

This is essentially a very simple leverage principle. Real estate holds its value; it appreciates along with the currency. The money you borrow is essentially leverage. A 20% down payment is equivalent to 4 times leverage, while a 30% down payment is only 2.x times leverage. With stable profits, the higher the leverage, the greater the return.

Of course, this article only provides a rough calculation, and the rate of return is not accurate at all. As mentioned above, there are many hidden costs associated with both taking out a loan and not taking out one, and the same applies to renting out a property—it's time-consuming and risky. Furthermore, we haven't factored in factors like property taxes. However, for most people buying their own home, with a suitable interest rate, the higher the monthly mortgage payment, the more profitable it is. Of course, another condition is that you know how to manage the remaining money.