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Updated over 9 years ago on . Most recent reply

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Michael E.
  • Westminster, MD
1
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20
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15 yr vs. 30 yr affect on cash flow

Michael E.
  • Westminster, MD
Posted

So imagine I have a generic property in a vacuum that I could finance in one of three ways (approximately):

30 yr loan => +$1000 cash flow per year

20 yr loan => Basically break even on cash flow

15 yr loan => negative $2000 cash flow per year

(all would be 20% down)

So I'm not a big time real estate investor that's always doing deals....I'm looking to own a small handful (1 to ~3) of properties to build long term wealth and generate some income to fund a potential early retirement in early 50's (maybe) and bridge the gap until I can tap into my 401k and IRA at 59.5 yrs old. So there's an incentive for me to have the property paid off when I'm 45-50 years old (15 or 20 yr loan), as opposed to financing for 30 years and then not owning it outright until I'm 60 (when I can access my 401k anyways).

BUT - I always hear about the dangers of negative cash flow. Does this still hold if the negative cash flow is due to aggressive financing, not the property itself?

Which option would you go with?

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2,072
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Carl Fischer
  • Rental Property Investor
  • Ambler, PA
1,382
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2,072
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Carl Fischer
  • Rental Property Investor
  • Ambler, PA
Replied

You need to work your numbers--on the surface these all look horrible to me even if you need a write off.  If you only need a few deals make them "good to great" deals not just "average or poor".  Real estate is harder than stocks and bonds you should be making more money with RE than you do in the stock market.  Cash on cash return? depreciation tax savings, etc?  If you borrow the money at 4% and are making a 15% return then use that money for 30 years but if your return is low then look for another property. Answer:  If you have a 30 year loan there is no penalty for paying it off in 15 years if you choose but you have the option to use the money for the full time as life conditions will change.

  • Carl Fischer
  • [email protected]
  • 215-283-2868
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