How does a 15, 20, or 30 year mortgage affect the 1% rule?

[Eric Meinnert]

Hi all, 

My name is Eric, and my wife and I have recently made our first purchase back in November; 2 different 3-plexes in our hometown in Wisconsin that were both for sale by the same owner. 

Truth be told, we didn't have analysis paralysis and we just pulled the trigger, for better or worse. The entire deal was close to the 1% rule initially, but there is a lot of rehab that is going to decrease that 1% significantly using any calculation you'd try. 

Truthfully, my wife and I both have daytime jobs that we love. We don't have any intentions of ever owning 30 doors or more.  We felt like getting into real estate as a means to 

a.) Provide better, quality housing in our local neighborhood, because there are some places in our community that I would not want my own kids to live in, even though we live in a B class neighborhood. 

b.) A way to supplement our retirement. In addition to these two properties, we have a STR in our local area that does well during the summer, and pays the bills during the off season. We therefore have the means to pay all bills currently, personal and business.

I know that a lot of people discuss cash flow, but is it wrong to not value cash flow? We currently have a 15 year mortgage that was taken out on both properties. We used our equity position from our personal property to finance the down payment, and plan on using the cash flow from the STR to supplement rehab projects at the LTR.

I have run the numbers, and it seems like if we were to get a 30 year loan on our same rents and purchase price, this situation would be pretty solid, potentially cashflowing $1000/month on all units pre-rehab, but on a 15 year, the numbers run tight, but like I said, I am personally ok with that. We have some money in reserve, the STR pays for the rehab on the LTR, and there should be limited actual money out of my pocket on the whole deal...

I feel like if it were a 30 year loan, by the book this would be a good deal. Is it alright to sacrifice cash flow for quicker paydown and quicker potential scaling? Thoughts?

Thanks for hearing me out, these are the things that keep me up at night :)

Eric

Thanks for your insight,

Eric