But he said he already HAS the money. I'm just suggesting that he invest that money in an index fund rather than slap it down for a down payment.
A 10.4% return on investment IS the average (since 1927). And the interest write-off is just icing, the real meat in the stock market considering there is a 4% interest difference between the mortgage and the index fund...
If you buy the right house and put just enough down to get the best rate (and not a penny more), then putting any additional money in other investments is a good idea. What you have to watch is when you start trading up. Not reinvesting the entire profit of one house into the other puts you in a tax liability situation.
But again, getting the right house in a good neighborhood is not the easiest thing to do. Just buying any old house and putting down the minimum so you can invest elsewhere is not a smart thing to do. For example: buying into a new development without the benefit of seeing who is going to buy the other houses is not smart. Buying into an established neighborhood, with good schools, is a good idea. Never buy near mass transit, like commuter trains. The hoods from the city ride out, rob you, and ride back. Don't buy next to a city park or a shopping center. It is better to buy a smaller house with more land versus a bigger house with very little land.
Granted, things run in cycles. But no stock market investment would have delivered the return that my house has in the last 10 years.