How Common is 30 Year Financing? And how this affects analysis..

[Dwain R.]

I have become a regular listener to bigger pockets and I’m a new real estate investor. I closed on my first deal in September (Quadplex and a House) and am under contract now for an 8 unit apartment complex.  My goal was 1 unit this year and it seems as if I'm about to have 13.

It seems to me the majority of time people in the podcast are talking about analyzing deals and cash flow and their goals they are basing it on a 30 year Finance. My first question, is: Is it common to find a 30 year Finance on an investment deal? Because in my area, banks will not even consider that! And they typically need board approval to even get 20. They push you hard to go 10-15, but I have been able to secure 20 at least. So how are people finding 30 year Finance deals on investment properties?

Next question....

This also makes a MASSIVE difference when you are analyzing cash flow for properties. I constantly hear on the podcast and elsewhere things such as: take your debt service, taxes & Insurance, maintenance, vacancy, mgmt, and perhaps cap-ex and then shoot for $100 a door after that. This seems to be brought up ALOT on the podcast, but is this typically based on a 30 year Finance? Because when dealing with 15 or 20, that’s much harder to do. Doable but harder.  I just wish shorter financing terms were discussed more because this changes things....

When people talk about the 2% rule, does this change based on Finance term of the property?

It just seems like I do not hear many dealings on the podcast with 15-20 year terms. Just curious....

Thanks!

[Carl Pickens]

Originally posted by @Account Closed:

Originally posted by @Christian Wathne:

Bill T. There are actually very many reasons to go for a 30yr loan rather than a 10 or 15. And wanting to pay off property may be short sighted.

Money tied up in a property is not doing anything for you besides avoiding 4-5% interest. Instead, you could stay borrowed against the equity and put that money towards additional investments assuming they generate additional income. 10+% CoC returns are easy to find.

To the OP, yes, 30 year loans on residential (1-4) units are very common. Commercial is generally shorter.

 As you wish. ;-)  I've been at this for 30 years so I have a different perspective.

Here are a couple of things for your consideration (and anyone else investing)

1) Nobody who had a "paid off" property lost it to foreclosure in the last 5 real estate down cycles  (This is a BIG thing)

2) You can always borrow against a "paid off" property if you need to

3) All the money coming from rents is PROFIT after the loan is "paid off"

4) You can't begin to guess what the next 30 years will bring and you are making assumptions you have no right to make about how "safe" a 30 year mortgage will be.

5) You have a LOT more flexibility when it comes to "paid off" properties than properties that have "liens" (mortgages) against them. 

6) By paying off the properties faster, you can borrower against them in the future to scoop up great deals from people who didn't plan ahead and have 30 year loans and need to sell fast. 

7) My point is: treat it like a business. Wishful thinking is not a business plan.

But, here are the numbers:

	Term	30 years	15 years
	Purchase	$200,000	$200,000
	Down 20%	$40,000	$40,000
	Loan	$160,000	$160,000
	Interest	4%	4%
	Payment	$764	$1,184
	Year 1	$9,168	$14,208
	Year 2	$9,168	$14,208
	Year 3	$9,168	$14,208
	Year 4	$9,168	$14,208
	Year 5	$9,168	$14,208
	Year 6	$9,168	$14,208
	Year 7	$9,168	$14,208
	Year 8	$9,168	$14,208
	Year 9	$9,168	$14,208
	Year 10	$9,168	$14,208
	Year 11	$9,168	$14,208
	Year 12	$9,168	$14,208
	Year 13	$9,168	$14,208
	Year 14	$9,168	$14,208
	Year 15	$9,168	$14,208
	Year 16	$9,168	$0	Free & Clear
	Year 17	$9,168	$0	Free & Clear
	Year 18	$9,168	$0	Free & Clear
	Year 19	$9,168	$0	Free & Clear
	Year 20	$9,168	$0	Free & Clear
	Year 21	$9,168	$0	Free & Clear
	Year 22	$9,168	$0	Free & Clear
	Year 23	$9,168	$0	Free & Clear
	Year 24	$9,168	$0	Free & Clear
	Year 25	$9,168	$0	Free & Clear
	Year 26	$9,168	$0	Free & Clear
	Year 27	$9,168	$0	Free & Clear
	Year 28	$9,168	$0	Free & Clear
	Year 29	$9,168	$0	Free & Clear
	Year 30	$9,168	$0	Free & Clear
	Total Paid	$275,040	$213,120
		Savings	$61,920

 Unless there is a pre-payment clause, you can just pay it off in 15 years anyway. The 30 year term gives you the option to pay less if you need to.