Investor · Broadview Hts, OH · Member since 2016 · 310 posts · 280 votes
Hello BP Family,
I am 35 and am just wondering if I should be considering 15 or 30 year mortgages. I have a goal of 5 properties in the next 5 years minimum and then hope to expand more rapidly thereafter and want to ensure I am planning for my exits and retirement as well as my current income. Any advice would be greatly appreciated.
A couple of things to consider... Ultimately the bottom line is how much your payment is going to be on your 15 year mortgage and how much your payment will be on your 30 year mortgage.
Lets give a scenario where a 30 year mortgage will cash flow you 500 dollars a month and a 15 year mortgage will cash flow you 100 dollars a month. Ultimately what is greater to you, the value of the extra 400 monthly or the value of having it paid off 15 years sooner?
Keep in mind that the extra 400 a month reduces your risk (you can have a bigger savings easier) in case of a large capital expenditure (roof, AC, etc). So 30 year is less risky.
You can also use that extra 400 a month to reinvest into more properties. In 15 years that is an extra $72,000 in your pocket. Depending on your market, but here in Texas that could easily be 2-3 down payments at 20% for rental properties. Thus the higher cash flow gets you more properties.
Also, with our inflationary dollar, the value of getting a 30 year mortgage increases. You will pay the mortgage with cheaper and cheaper dollars every year that are easier to acquire.
Keep in mind millenials are a group of youngsters who are starting to reach the age of having families and settling down. These millenials are renting in record numbers and not buying. This means that it is likely in the next decade that rents will be increasing at a faster rate than prices of homes will. So if you leveraged that extra 72,000 over the 15 years and got yourself 3 houses that rent appreciation will mean a lot more for you in cash flow than paying it off early.
All in all every strategy is viable... however I believe if you are frugal and save your additional cash flow to reinvest you are better off with a 30 year mortgage... especially since you are young!
Without a better idea of your personal finances and goals, it's hard to provide advice on this issue. It's usually a question that is very dependent on personal situations and goals. I will tell you that, having done both, I would not do 15 year terms again. When you're first starting out, the higher payment really messes with your DTI. Moreover, in a few years you've got a ton of equity doing nothing. If you're just starting out now, you will likely still be acquiring in 5 years and that's money that could otherwise be used for acquisitions. This is a topic that has been debated to death on BP, so I'm sure a quick search will give you access to other view points.
this is a loade question because it's based on numbers. You will have to run the numbers each way to see the best deal. You need to define your level of cash flow and still put enough away for repair etc. Spending more on a higher mortgage may stall your buying.
I am 29 and am concentrating on creating cashflow with 20 year amortization. I was going for 30 but the bank I have got to know does 20 with terms I like. I am early in my real estate career so I would take my ideas with a grain of salt.
I am aggressively going after 3 separate types of buy and hold right now. I will assess the results in a year and decide where I like the best. My 3 target areas are low price-high cash flow section 8 SFH's, B+ SFH's in 80%owner occupied neighborhoods with less cash flow but stands for appreciation/better tenants, and condos/cabins in Branson, MO in a nightly rental program.
I started the LLC's 3 months ago and have a goal of 30 doors before 2018.
I would say that if you want to rapidly expand after the first 5 then 30 year would be the way to go.
Thanks guys. I definitely want to have as much money available to me now as I am just starting out and need every penny. I also have other retirement investments so I'm not so worried about necessarily needing to liquidate my properties upon retirement. Sounds like 30 year is the way for me for the foreseeable future.
to me, unless the interest rate is WAY better, I always do a 30. If the cash flow or your finances allow a 15 or 20 year payment... just do it... the flexibility is worth the couple hundred bucks in interest over 5 or 10 years.
Interest Only (no amortization) or, 30 year amortization...lowest debt service is the key...retiring the debt as fast as possible after acquisition works for some, others like to have the write off that mortgages bring...in the end, that's up to you and your plans. Personally, I leave no more than about 25-30% equity in any assets I own and refinance and redeploy the cash into other assets anytime I get above that. My residents pay the mortgages and costs of doing so, and I get the maximum amount of benefits and use of the equity that accumulates in the properties as we go.
I wrestled with the same question. I've tried the 15 year route, convincing myself that paying down the mortgage was more important, however my last purchase was on a 20 year. I'm actually looking to refinance my 15yr into the same 20 yr. I want to flexibility to pay more if I can or save if i need to.
One key driver for me was that I wanted to work with business loans, and not personal. Personal have limitations and legal risk. Both can be managed but that wasn't something I wanted to do. To each is own.
@Charlie Fitzgerald I like that strategy. I have that in my head with mine but have to do 20 year with my bank. I would look elsewhere but I love how easy the bank is with my business plan. I like the tax savings I get from lower equity and more potential cash flow. I do want to keep more than most people do in a nest egg for a hardship though, but this is because I want to quit my W2 by 2018.
@Michael` Cluer Keeping the nest egg at whatever level you want is your call...I would not leave equity above 25% in any real estate asset and call it a nest egg...unless you want your eggs scrambled every 6-8 years +/-
You need to establish your criteria in your business plan. Something like the Mckissicks in the Millionaire RE Investor by Gary Keller. They had to buy 20% below value, 20 % down, and it had to net $200 a month, and it had to do it on a 15 year mtg. That is a good example. I prefer the longest mortgage possible on every deal. if I could do a 40 year mtg I would. Cash flow is king and you can pay them off and refi with the high cash flow once you get a nice portfolio. But also, take the 30 yr now, all of them, after you have 10 it will all be seller financing and you will do 10,15 and 20 years forever after 10 so it will balance out. Namaste.
I am 35 and am just wondering if I should be considering 15 or 30 year mortgages. I have a goal of 5 properties in the next 5 years minimum and then hope to expand more rapidly thereafter and want to ensure I am planning for my exits and retirement as well as my current income. Any advice would be greatly appreciated.
Nick
Much more info is needed from you for anyone to give you a well-thought out response....
What are your personal investment goals? If it's to hold for the long-term and if the interest rates allow you to sufficiently cash flow, I would go with 30 year. The answer to this question also depends on what you think interest rates will do. If you believe that they will rise over time, go with the longer fixed term (30 year).
If you plan to sell within 15 years and the 15 year loan is at a lower rate, you should consider going with the 15 year fixed mortgage.
A couple of things to consider... Ultimately the bottom line is how much your payment is going to be on your 15 year mortgage and how much your payment will be on your 30 year mortgage.
Lets give a scenario where a 30 year mortgage will cash flow you 500 dollars a month and a 15 year mortgage will cash flow you 100 dollars a month. Ultimately what is greater to you, the value of the extra 400 monthly or the value of having it paid off 15 years sooner?
Keep in mind that the extra 400 a month reduces your risk (you can have a bigger savings easier) in case of a large capital expenditure (roof, AC, etc). So 30 year is less risky.
You can also use that extra 400 a month to reinvest into more properties. In 15 years that is an extra $72,000 in your pocket. Depending on your market, but here in Texas that could easily be 2-3 down payments at 20% for rental properties. Thus the higher cash flow gets you more properties.
Also, with our inflationary dollar, the value of getting a 30 year mortgage increases. You will pay the mortgage with cheaper and cheaper dollars every year that are easier to acquire.
Keep in mind millenials are a group of youngsters who are starting to reach the age of having families and settling down. These millenials are renting in record numbers and not buying. This means that it is likely in the next decade that rents will be increasing at a faster rate than prices of homes will. So if you leveraged that extra 72,000 over the 15 years and got yourself 3 houses that rent appreciation will mean a lot more for you in cash flow than paying it off early.
All in all every strategy is viable... however I believe if you are frugal and save your additional cash flow to reinvest you are better off with a 30 year mortgage... especially since you are young!
@Nicholas Misch go with the smaller payment. @Charlie Fitzgerald is just giving good advice. I am with him although it gets real hard after awhile for me at least to keep things at 75 ltv and a paper. I would love to. @Gonz Trevino is also right on in my opinion. @Anthony Johnson 10 is just a number my friend, life doesn't end there. Plenty of great options out there for 11 and on, you don't need Fannie.
I have always looked at it as, go with the highest term your lender will allow and later treat it the way you want to, at least you have an option.
Example - $100,000 loan at 5% for 15 years or 30 years?
$536.82 a month on 30 years
$790.79 a month on 15 years
Take the 30 years loan and if you want you can throw extra $200 a month towards principle, you can end up paying it off in 15 years, just like the 15 year loan but if there is a tough time or things are bad, you have an option to not throw that extra $200 a month or so. Gives you so much flexibility.