• In 2016, Steven and Lauren Keys bought a condo in Gainesville, Florida, for $71,000 in cash.
  • Years later, they crunched some numbers and discovered that by deciding not to take out a mortgage instead of investing that cash, they had actually lost out on around $19,000.
  • But keeping money in a home and not making mortgage payments gave them the freedom to achieve long-time travel goals.
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Buying a home was never the end goal for Lauren and Steven Keys. They always planned to become financially independent and retire early and buying a home in cash would bring them one step closer.

They took that step in 2016, when Steven was 25 and Lauren was 26. The couple bought a three-bedroom, two-bathroom condo in Gainesville, Florida, for $71,000. Theyhad worked side gigs on top of their full-time jobs in education and marketing, and invested as much as they could, ultimately selling some investments to free up the cash for their home.

"You buy a house for cash and then your friends and family think that it's this amazing, positive accomplishment," Steven said. "It's definitely the 'right thing to do.' You're saving all this money on interest, and it's such a good deal."

But over the next few years, the Keys realized the cash-versus-mortgage debate wasn't so black and white. As with most big financial decisions , there are pros and cons to each side. Sure, they didn't have to worry about mortgage payments, but they estimate that they've actually lost money on the deal at least $19,000.

They would be $19,000 richer if they had invested the money instead of paying cash

About four years after buying their condo, the Keys decided to crunch the numbers to learn what would have happened if they had gotten a mortgage rather than paid in cash. If they had left their money in investments , gotten a mortgage with a 20% down payment, and invested the rest of the money they had used to buy the home but done everything else the exact same way what would be different?

The answer: They would have about $19,000 more to their names.

In 2016, they had a little over $20,000 in savings, and they sold over $50,000 of their investments so they could pay $71,000 in cash for the condo.

If they had chosen to take out a mortgage instead, they would have placed a 20% down payment of $14,200. They would have left the $50,000 invested in index funds and invested the roughly $6,000 they had in savings in index funds, too. Typically, they don't leave money that doesn't have a clear purpose in savings they invest it instead.

Looking back to 2016, they assumed a 30-year mortgage rate of 4%, and an annualized return of 11% on the stock market. They would have been borrowing money at a 4% rate, but earning money at an 11% rate.

By March 10, 2020, they would have been over $19,000 richer if they had taken out a mortgage rather than bought the condo with cash.

"If you do the calculation today, that situation would be even more dire, because the stock market's way up," Steven said. "On March 10, we were kind of in the middle of that whole coronavirus stock market plunge."

Steven said he hasn't done the updated math, but he suspects that $19,000 would be closer to $30,000 by now.

They still think paying in cash was the right decision for their lifestyle

Steven and Lauren would have had a larger investment portfolio right now had they invested more aggressively rather than bought a home in cash, but they don't regret their decision.

Although the three-bedroom, two-bathroom condo is bigger than they need, they say, it's nice to have extra space for an office and guests, and they've even taken on roommates here and there. Since they don't have a mortgage, their roommates' rent is simply bonus income.

They still have money in the stock market, but feel safer with a diverse portfolio that includes both index funds and a home.

In many ways, the house provides them with the flexibility to travel more. "We bought this condo with the idea that it would also make a really good rental property," Lauren said. "We love to travel, and we've been known to pack up and go somewhere new for six months or more at a time."

Last year, the Keys took a seven-month road trip around the United States and visited every national park .

They don't think they would have been comfortable taking time away from their careers for a big trip if a) all their money was invested and they were worried about how the stock market would perform, and b) they had been preoccupied with making mortgage payments. The couple was able to pad the expenses of their big trip by renting out their condo while they were away, and they hope to do so again in the future.

They expect to hang onto the condo for a long time, even if they decide to live elsewhere and rent it out long-term. Depending on how the stock market pans out over time and how much they can charge for rent over the years, who knows they may lose out on more money, or things could look up for them.

Lauren knows that since she and Steve are young, many people would say they should have invested their money rather than buy a home. "But for us," she said, putting some money in real estate "granted such peace of mind and freedom."

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