Conflicted with 15 vs 30 year mortgage for first investment property

[Johnnie Smith]

Hello all,

I would appreciate any insight / thoughts people have about this topic. 

I grew up with real estate being in my family. My parents currently own four investment properties in addition to the home they live in. Two of those investment properties they own clean and clear and are paying off their residence in 2016. 

That all being said, they took out 15 year mortgages for all of those which is contrary to the popular belief that you read here / almost any blog on the internet. I am sort of in a predicament because I too intend to buy my first investment property myself as I truly do enjoy the business myself and see the amazing benefits of passive income. 

I just can't seem to decide what would be better, the 30 or 15 year mortgage. I see the benefits of positive cash flow from day one as being a huge deal since that can create the snowball effect and thus enable me to purchase more properties faster. But seeing my parents sort of changes that perspective for me since it was almost like they sacrificed that negligible cash flow for a promising guaranteed return.

Real estate would be a side business as it is for my parents, and my strategy as for now is a buy and hold strategy, with the possibility of selling those properties when/if they were to appreciate and convert those earnings into better properties. 

What are all of your thoughts on this common debate?

[Joe Villeneuve]

One of the greatest features of an REI hold is the cash flow. Most SFH are not paid off in 15 years, they are either refinanced or sold between 7 - 10. That means all you are doing with a 15 year mortgage is making the lender more money since your payments are higher. All those faster mortgages, sold under the guise of being an advantage to the buyers is bogus. They are the the advantage of the lender. They involve higher monthly payments, or extra monthly payments. The advantage to the buyer would occur at the end of the mortgage, not the beginning. That means you have to pay it off to get it. Since most mortgages are refinanced within 7-10 years, that advantage is never reached. In the mean time, all you've done is payed more for the house.

Now, having said that, keep in mind you can't pay for a 15 year mortgage in 30 years.  You can however, pay off a 30 yr mortgage in 15...or less, and since the payments (amortization) is based on 30 years, you will be paying less per month this way (than if you had a 15 year mortgage).

For me, If they gave me a 100 year mortgage I'd take it.

Joe Villeneuve
REcapSystem
A2REIC