Buy and Hold Amortization Years

[Account Closed]

Hi just posing a scenario out there for buy and hold investors. If you have a private investor willing to put up all the funds for a buy and hold, how long of a mortgage would you prefer? In our example you're buying a 100k house that rents for $900. You can get a 30 year mortgage and cash flow a couple hundred every month or you can get a 15 year and basically break even. Which would you prefer? I'm curious what long time investors would do because I may have a situation where I need to decide coming up. 

[Bill Gulley]

Not that simple.

What's your goal, cash flow or equity?

What's the expected hold time?

What's the condition of the property?

How long will the property be functional without significant improvements?

Initial rent is 900, what's the market like? Any forced appreciation possible?

What are the differences in the interest rates?

Same loan terms other than amortization?

What's your ability to cover the additional payment required during vacancies?

Generally, the longer amortization will win, until cash flow becomes less crucial for an investor.

Your personal financial position will play on the right choice, are you retiring in 18 years or 8 years, and too much equity can be difficult and expensive to take out of the walls later on.

I don't hold very long, at about 7 to 10 years the depreciation falls with less of an advantage, that means it goes up for sale. Having lots of equity means if I were to do some creative sale, I'll have to finance my equity. For some that's fine, others want their money.

Need to map out your goals, your intentions of holding a property and then finance accordingly. Good luck :)