20 year mortgage vs 30 year mortgage

[Eugene C.]

Hello All,

I'm new to REI and I am busy negotiating my first deal at the moment. I'm starting small, so it's a single apartment unit, which I plan to rent out and hold indefinitely.

Whilst preparing my mortgage finance application I have been giving some thought to whether I should apply for a 20 or 30 year loan period. My thinking is as follows:

All else being equal and assuming I can secure the same interest rate for either loan periods, a 30 year loan will have a lower monthly repayment, giving me higher monthly cashflow. The downside is obviously increased total interest payment over the life term of the loan.

A 20 year loan will obviously have the opposite effect.

My question is, given that my strategy is "buy-to-let", am I correct in my thinking that the advantage of more robust cashflow from day 1 with a 30 year loan is more desirable than the lower total interest payment over a 20 year period?

Thank you in advance for all input.

Eugene

[Jerry W.]

@Eugene C. if you are only going to get 1 rental, it is not as big a deal, but if you are going to buy more later, having the longer term loan has some benefits. First the debt to income formula makes you look better to banks if you have a lower monthly payment because your rent amount is constant. Next if you want to expand and buy several more rentals that cash flow you will have greater monthly income to purchase a later rental, ie. if you have ten rentals cash flowing $200 per month instead of $300 per month, you have $14,400 less per year to use as down payment on another rental. You could probably finance another rental purchase every year with the difference, maybe more.(leveraging) If you decide to stop buying more and concentrating on paying them off you could pick and choose the ones with the highest interest rates to pay them off. That being said all of my loans are 15 year in house loans so I am jealous you have the option. Oh and welcome to BP.