Property Makes People Think Irrationally

Over at a new found site called ” The Writer’s Coin,” the 28 year old personal finance writer questions whether he should buy this house if he only has 13% down. Mind you, he has been giving personal finance advice for a couple years now, and is even a guest poster on mega-site Wisebread, which Financial Samurai may one day contribute to. Honestly, I felt like I was watching one of those Holiday Inn commercials reading his post. A guy would provide some great advice and become a medical doctor because of his one night stay at the hotel chain. But what about the next night when he has to sleep at home?

WC’s question got me thinking. If someone who has been disciplined enough to write about money matters still can’t see the fallacy of buying a house with only 13% down, why are we so weak when it comes to housing? Do people just blindly fall in love with something and disregard every financial principal?  Doesn’t seem like WC has much more saved up than 13%, because who says “13% down” anyway? Why not 10%, 15%, or 20%?  Heck, back in the good old old days, people paid 100% down.

How did we come to this pitifully low downpayment standard in America? Probable explanation #1) It’s the Madoff Syndrome aka greed! “I want this, and I want it now!” and #2) The Nesting Syndrome.  There is a tendency for those in a long term relationship who want children to buy a place. I don’t even have to read WC’s about page to guess he’s planning on getting married or having kids. For the guy specifically, the itch seems to start at 30, if not sooner. The desire of owning our own castle and showing we’ve “arrived” is strong. 

At the end of the day, if all you have in the world is not much more than 13% down to buy your place, FORGET ABOUT IT! You are too poor, or you are desiring too much. It’s that simple! If you get canned the day after you close escrow, you won’t have long to survive because of your lack of buffer.  If you have more money than 13% down, this is a different matter. You may want to put 13% or even less down, depending on your borrowing costs, or your opportunity costs.


My rule for housing downpayment is simple. Before you even think about buying a property, you need at least 30% of the purchase priced saved. Let’s use a couple examples.


$1,000,000 house. 13% down including closing costs = $130,000. Left over money is let’s say $20,000. A 6% interest only loan on the remaining 87% costs $4,350/month. You basically have 2 months of payments coverage saved before you go start ruining your credit and entering the foreclosure process if you lose your job. Property taxes alone cost $11,000/year! If you only have $130,000 in savings to put for a downpayment, you cannot afford the house!

Instead, look at a lovely $500,000 house. Put 20% down or $100,000, and your remaining $50,000 (10% buffer) provides 22 months of coverage based on a 6% interest only payment on $400,000 ($2,000/month) and property tax of $5,600/year. If for some reason this $500,000 is not good enough for you, too bad!  Rent happily. Renting is not flushing money down the drain as some perceive. You’re paying for a utility. Use your lack of savings and income as motivation to earn and save more! Don’t make yourself fit a desired lifestyle, make your lifestyle fit your financial reality!


If we’ve learned anything from the past 18 months, it’s that thousands of people in America leveraged up too much and blew themselves up. The irritating thing is that responsible renters and owners also got blown up in the process. We were collateral damage from the fall out! Hence, I implore WC, and all those who don’t have at least 30% of the value of the property in cash saved up, to not buy the place for all our sakes. Because it is we in the end, who suffer right along with you with our tax dollar bailouts and asset exposure.  The safer the debtor you are, the better it is for the world.

WC, I like your site, and enjoy reading your background story.  Please take my advice and wait until you gather a bigger nut.  Property isn’t going to suddenly spike in price over the next 1-2 years.  Property is like a stock, if you miss one, there will always be another one to buy.

Readers, what are your thoughts on how much to put down when it comes to property? Why do you think people make irrational property decisions?


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Updated 2H2015

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. Gen Y Investor says

    I’m a believer in putting no less than 20% down on a property. Unfortunately not many other people feel the same way. Even after the housing crisis people are still getting homes with as little as 3.5% down through FHA loans. You’d think we’ve learned our lesson by now.

    -Gen Y Investor

  2. Charlie says

    The majority of Americans have no will power when it comes to saving money and planning. I think what you’re saying is so important. 30% down with a cash cushion in the bank is the way to go. Everyone should always have an emergency fund in case they lose their job, have an unexpected health issue or expense, etc so they that can continue to pay all their bills for 6+ months without racking up credit cards.

    • says

      I wonder if it’s just a generational thing. It’s all about instant gratification now, and people just need to have that place now. I get the greatest satisfaction during the process of waiting, saving, and building for that desire. Maybe I’m just weird. RB

  3. Bulldog Gin says

    That’s pretty funny that a guy who writes about personal finance doesn’t understand that only having 13% down is ludicrous.

    Makes me wonder what kind of readers follow him, and whether they are all being led down a path of doom.

  4. Geek says

    ! This is totally right. We’ve been saving for a house for a couple of years now, and my guy is getting this terrible burning itch to buy something.
    Houses in the neighborhood I want to live in are about 550-600 for something nice, and houses I’d live in are about 400 for something nice. We have about exactly 20% down for a livable (but not most desirable) house, and my guy is so anxious!
    “If we don’t buy the house this year, you should just get that car you want”
    “We have 20% on this”
    I’m going to introduce the 30% concept, which is pure genius from sensible people like you to people like me who are still fighting to find out what is sensible.

  5. says

    @Geek Hey there! Good to hear from you and welcome to Financial Samurai! Keep on saving, and don’t let the irrationality of home buying get the best of you.

    Although owning your castle has this priceless feeling, you just don’t want to rush into the biggest purchase of your life like so many did.

    Have a great weekend! RB

  6. says

    People are trained to think that their home will be their biggest and best investment of their life. Unfortunately that will cause irrational investment decisions.

    I like what you said about property and how it is like stocks – hit and miss. You might make the greatest purchase ever, but then make an absolutely horrid property investment. Problem is, you are essentially “all in” when you buy your house because people buy the biggest they can get usually. So if that investment does not pan out, you do not have any cash to make that really great purchase.

    • says

      Being “All In” is a great analogy. Do or die. The Writer’s Coin guy would seriously be all in with his “13%” downpayment. That’s a no no, just in case you get bad beat, you want a big enough bankroll to handle the swings.

  7. says

    I used to believe (as early as January this year) that if you didn’t own a house, you had not “made it” financially. At the early stages of my financial rebirth, this made even more sense to me. All said though, I’ve learned a lot over the last 9 months, and my attitude is slowly changing. I had for example longed to buy a new car. But I’ve reached the point now that my attitude is thus:

    Yes, the car I drive IS 7 years old. But, I’ve owned it from new, know its history, it works flawlessly and likely has at least another 100,000 miles in it. It also gets 67.5 mpg which with our gas prices, is a blessing. I could change it, but the only thing that’d bring is that I can say “Hey! Look at me! I’ve got a new car!”.

    My sense of self-worth, my inner feeling of social status is no longer driven by what I own. I actually no longer care what people think of me based on what I own/drive/live in. Providing what I own/drive/live in fits my principles, works well and are efficient, then I will keep owning them/driving them/living in them.


  8. says

    @Lee Sounds good Lee! Good to hear you share in my car journey of not going overboard. I have a 9 year old car myself. Funny you speak of self-worth and cars. I just finished a small post last night on exactly those topics. You can thumb through the older car posts if you wish.

    Welcome to Financial Samurai Lee!

  9. Jana says

    If he chooses a less expensive house…he’ll have the full 20% down….a starter house and he’ll meet the 30/30/3 rule. Modesty isn’t fashionable, but it is financially prudent.

    While I don’t agree with everything Robert Kiyosaki says, I did like a point he made in “Rich Dad, Poor Dad”: The Rich Dad lived in a very modest home and invested his wealth in money-making small businesses. He told Robert “if your home is your biggest investment, you’re a fool”. In other words, buy a modest home with low mortgage payments, so you have available money to invest in other things….

    This may not be specific to San Francisco, but I’ve met several SoCal transplants to my state who look down on condo dwellers. They grew up in towns where the poor kids lived in apartments, and anyone with any money owned a house with a yard. Psychologically it’s ‘moving down’ to buy a reasonably priced condo, instead of buying a McMansion house. Payments be damned!

    • says

      Jana – You need AT LEAST $1million to buy a 1,500 sqft single family house in a decent part of San Francisco. In the nicer areas, we’re talking $1.5 million – $2.5 million for just a normal 1,700-2,500sqft house. It’s so expensive b/c a lot of people are making a ton of money here.

      Condos are fine, and is an efficient way to live. No backyard to mow, low maintenance. To each their own. I live in a house with a small back yard, and I tell ya, it’s a little too big, and the house isn’t big at all!

  10. says

    Wandered into the archives hall and found this post – great points about how we fall in love with housing. Many folks end up starting off on the wrong foot because they want a house so badly. It’s as if renting has become a sin or a plague that needs to be avoided. I’m all for owning a home, but yes, by all means be smart about the downpayment!

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