30 yr or 15 yr residential (conforming)?

Question

We are buying two duplexes and would like your perspectives....today, whether you prefer a 30 yr or a 15yr fixed? To be completely transparent, all of our past purchases are all 15 yr fixed.

Thank you in advance for your input.

Adam Martin · Answer

I always do 30 whenever possible.  If you want to pay off a 30 in 15 years, go for it, the opposite is not the case without refinancing.  The rate difference isn't that much and I prefer to have the cash flow to help me scale faster.  It also helps my DTI to have lower payments.  If Dave Ramseys thought is that if you don't set yourself up to pay it in 15 you won't due to Murphys Law, what are his thoughts if you can't pay off the 15 in 15 due to Murphys Law.  Certainly everyone's situation is different however I prefer more options and flexibility in payments vs. less.

Ryan Howell · Answer

I go with 30y, but it really depends on your goals.  If you don't need cash flow now and want them free and clear in 15, then I definitely see a good reason for 15.  Personally, I want good cash flow now and don't necessarily need them paid off in 15 years.  I do think 30 year offers flexibility since you can pay it like a 15, whereas you can't pay a 15 like a 30.  Obviously, the Dave Ramsey argument is Murphy's law will come to play and you won't actually pay it that way, which I do agree has merit.

Scott Passman · Answer

This is always a preference thing, and mine would be to take a 30 year every time.  Being successful in real estate long-term often involves being well capitalized and having high safety margins between incoming rents and outgoing expenses, so the bigger the margins are the less risk you have.  Taking the 30 year gives you a lower monthly payment and more flexibility with your capital to put into reserves or reinvest.  Plus, the longer you spread out the debt repayment term the more "cheaper" dollars you get to repay it with into the future as we all know a dollar is worth less tomorrow than it is today.  Rates are so low even for 30 year terms that it makes it even more appealing.

Dan Goeckel · Answer

Adam Martin, I appreciate the opinion. As always it is a frame of mind...we were in that frame of mind for a long time, now we are shifting. The other deals were so good that we stayed with a 15 and were still making 10-15% CoC (now much more) and cash flowing, and we also didn't know enough on our first few deals...years apart. Now we want to grow a little quicker. I still don't think the idea of a 15 yr is bad (buy and hold is our strategy, but could always change), if you are not paying for anything yourself and still getting double digit returns. That's why I say modified Dave Ramsey.

Dan Goeckel · Answer

Yes! To both replies! All of our other buildings we put in 15 yr fixed because cash flow AND CoC was there. With these just not nearly as good but still good and Ryan Howell, we do live by a "modified" Ramsey approach so I agree with all you've said. Thanks! Scott Passman, your thoughts went exactly to where ours did. We are using capital to purchase and in an uncertain market we want to keep our capital building to keep our "cushion" up for oops. At the end of a year or so of re-establishing our own capital requirements we agreed we can then start putting down more if we want to or just keep reaping our investment for the next one. Guys thanks for your insight, help and verifying of our position. As long as we have tenants and take of them and the building we will always be good to go!

30 yr or 15 yr residential (conforming)?

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