Cash flow with respect to 15 & 30 yrs note

[Linda S.]

Forgive me if this has been asked/answered before.
Since 15 yrs and 30 yrs note are affecting the cash flow outcome, we might not be talking apple to apple when we talk about cash flow. Are investors generally using 30 yrs in this calculation? Would someone please explain.

[Kelly N.]

Hi Linda,

I can't speak for everyone else, but I use 30 yr fixed loans in my calculations since that is the loan I want. At these rates, I intend to use other people's money for as long as possible. Since I am investing for cash flow, 30 yr terms make the most sense. :)

If you want your property paid off in 15 years, choose that loan and use it in the calculations, or get the 30 year and pay it like a 15 yr- this gives you flexibilty to pay less when you need to. If it cash flows with a 15 yr loan, great!

There is one more consideration- if you are just starting out and want more than one property, banks will look at your debt to income (DTI) ratio. For the first TWO YEARS of rental property ownership, the debt for that property counts against you in your debt column. After two years of tax returns showing rental income (for each property I am told by my lender) then they add the cash flow to the income side. Currently, my lender is allowing 43% debt to income ratio max, if we were doing 15 yr loans we would be able to afford less property since the payments going out for the year are higher. Just something to keep in the back of your mind.

Kelly