Unpopular opinion? 15 year vs 30 year mortgage

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Unpopular opinion? 15 year vs 30 year mortgage

Andrew Barrett
Member since 2020 · 25 posts · 5 votes

Thoughts?

I am trying to explain that because I’m 25 and make $200k-250k a year (mostly from flips) that using a 30 year mortgage on my 1031s for the 2-3 rentals a year— makes sense?

they are insistent that 15 years is infinitely better and not even in the same ball park as a 30 year loan. 🤦‍♂️ 

In what way can I explain this to these people (mentor, other local investors that I have weekly convos with, and some friends that aren’t super investor savvy)

(goal/action:I am trying to buy 3 single family or small multi fam properties a year -rentals — I buy on avg- 5 flips a year and avg 35k profit per deal consistently because my method is easily repeatable/similar properties etc— I make 75k+ selling real estate and about $150k-$200k doing those 5 flips

^ and I 1031 at least 3 of those)

(my thought is- I have a lot more opportunities with a 30 year 20% down conventional loan...than 15... my break down of why I feel that way just doesn’t make sense to multiple people despite obvious key factor but mostly because they were either taught or learned the opposite early on In their own personal investing strategies/planning. Note: they are 23 to 59 so I’ve tried videos, calculations, and writing out specific deals... am I missing something? And yes I know it varies by plan and really isn’t that different in the grand scheme for most people ....but humor me

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  • Joshua McMillion
    Rental Property Investor · Madison, AL · Member since 2019 · 487 posts · 658 votes
    5y

    @Andrew Barrett

    Congratulations on your success in RE at a young age, and it's commendable that you also want to help educate others. The individuals you are speaking with have different goals, and I would first start by asking what their exit strategy will be with their homes. If they express, they would like to sell under 10 years, that could be an easy way to explain that mortgage rates are at a historic low, which comes with leverage. 

    With mortgage rates being significantly low, a 30 year fixed mortgage allows for higher cash flow, given the principle and interest payments. However, if their goal is to purchase this home and not scale, a 15-year mortgage may be better. It depends on what they are trying to achieve. 

    Sincerely, 

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  • Andrew Barrett
    OP
    Member since 2020 · 25 posts · 5 votes
    5y
    Originally posted by @Joshua McMillion:

    @Andrew Barrett

    Congratulations on your success in RE at a young age, and it's commendable that you also want to help educate others. The individuals you are speaking with have different goals, and I would first start by asking what their exit strategy will be with their homes. If they express, they would like to sell under 10 years, that could be an easy way to explain that mortgage rates are at a historic low, which comes with leverage. 

    With mortgage rates being significantly low, a 30 year fixed mortgage allows for higher cash flow, given the principle and interest payments. However, if their goal is to purchase this home and not scale, a 15-year mortgage may be better. It depends on what they are trying to achieve. 

    Sincerely, 

    Right right, they want to scale but at year 13-20 

    one used a similar plan as mine but they pay off the 2-3 a year at year 15-20 exponentially as more get paid off but eh. I can cash flow about $300-500 a month per rental at 30 years  pretty consistently and on a similar deal they are breaking even or losing a little money at 15 years.
     

    But I definitely agree with what you’re saying - to each their own in this game. Mine is a little more aggressive especially in today’s ridiculous market but for now I’m only doing great deals and holding the rest in a pre-tax self directed account to be used later for real estate if the market dips or drops.

    Ex. I’m trying to buy an $800k 4plex  that’s worth 900k all day w/ no repairs/changes to the rent etc and I’m doing 20-25% down. It cash flows $1700-1900 a month (1550-1650 a unit) at 30 years or exactly breaks even at 15 years. For now I’d rather take the $ on hand and it still appreciates 5-6% a year because where it is. It went up 11% in the last 12 months 🤦‍♂️ (should of bought then) but it kinda sucks because the owner bought it for $171k-190k in 2010 lol

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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @Andrew Barrett:
    Originally posted by @Joshua McMillion:

    @Andrew Barrett

    Congratulations on your success in RE at a young age, and it's commendable that you also want to help educate others. The individuals you are speaking with have different goals, and I would first start by asking what their exit strategy will be with their homes. If they express, they would like to sell under 10 years, that could be an easy way to explain that mortgage rates are at a historic low, which comes with leverage. 

    With mortgage rates being significantly low, a 30 year fixed mortgage allows for higher cash flow, given the principle and interest payments. However, if their goal is to purchase this home and not scale, a 15-year mortgage may be better. It depends on what they are trying to achieve. 

    Sincerely, 

    Right right, they want to scale but at year 13-20 

    one used a similar plan as mine but they pay off the 2-3 a year at year 15-20 exponentially as more get paid off but eh. I can cash flow about $300-500 a month per rental at 30 years  pretty consistently and on a similar deal they are breaking even or losing a little money at 15 years.
     

    But I definitely agree with what you’re saying - to each their own in this game. Mine is a little more aggressive especially in today’s ridiculous market but for now I’m only doing great deals and holding the rest in a pre-tax self directed account to be used later for real estate if the market dips or drops.

    Ex. I’m trying to buy an $800k 4plex  that’s worth 900k all day w/ no repairs/changes to the rent etc and I’m doing 20-25% down. It cash flows $1700-1900 a month (1550-1650 a unit) at 30 years or exactly breaks even at 15 years. For now I’d rather take the $ on hand and it still appreciates 5-6% a year because where it is. It went up 11% in the last 12 months 🤦‍♂️ (should of bought then) but it kinda sucks because the owner bought it for $171k-190k in 2010 lol

    Borrow on the 30 year and pay it like a 15 year if you don't care about the cash flow.  There may be a time when you want the cash flow and it will be there.  By paying it like a 15 year, you pay it down faster increasing the equity.  Just watch the prepayment penalty if you have one so you don't exceed whatever the parameters are.

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