15 Year Notes vs 30 Year Notes

[Jessica Monroe]

Hello BP Community! I'm 24 years old and looking to purchase a rental property within the next 6 months. A fellow BP member made the comment about putting loans on a 15 yr note vs 30 yr to be debt free sooner which I think is a great idea! However, when I'm running numbers on potential properties I notice the difference between positive & negative cash flow can vary depending on the term of the note. 

Any thoughts or feedback?

[Desi Arnaz]

Years ago when I was in my late 20s I purchased a bunch of single family rentals with 15 year mortgages.  My plan was to have them paid off by the time I was in my early 40s.

At the time I didn't have very much cash, so I leveraged each property as much as the lenders would permit.  It seemed like a good idea, but the reality was that the cash flow of most of these properties was negative.

In the long run, those negative cash flows combined with repairs, vacancies, property tax increases and volatile economic conditions got the best of me & I had to sell many the properties in order to avoid losing them.

Needless to say, I am now a proponent of only acquiring properties that have a positive cash flow.

If you can acquire a property with a 15 or 20  year term AND a positive cash flow...that's not a bad thing.  But avoid the "alligator" known as negative cash flow.  Even a small gator can inflict serious damage.

These days I put my money in cash-flow mortgage notes. No alligators, extremely low carrying costs and great, consistent ROI.

I love to see young people with vision & purpose.  By adding BP to the mix you will also have direction & counsel. A Winning Combination.