Valuing Equity over Cash Flow

[Jordan Blanton]

Hello all, 

Requesting some advice for my next purchase. I'm 31 years old with two properties that already cash flow very well. I'm ready to go with purchasing a third property but when analyzing properties, it seems difficult to find one that cash flows well. It is possible, but not a considerable amount and certainly not as much as my other two properties. 

My question that I would like one to consider is this: Should I target a property that slightly cash flows with a 30 year fixed, or buy a home with a better rate 15 year fixed and target fast accumulating equity and a big fat cash flow egg that will be gifted to me in 15 years? I understand the added risk with a 15 year fixed (always have an exit strategy) which I will have with cash reserve tucked away that will fund major repairs / emergencies if they come up. I also have a good w-2, live below my means, no debt, and due to get wage increases in coming years. 

My thought is since cash flow is more difficult at the moment, and with my age, it seems more immediate and appealing to get a 15 year fixed that will set me up very, very well when I turn only 46 years old. When analyzing properties and doing calculations, this strategy does not provide a good return for the first few years, but it most definitely does give me faster equity accumulation and gives me the quickest/biggest cash flow per year that trumps other situations with properties on 30 year fixed mortgages. 

Thoughts and opinions would be appreciated! 

[Steve Vaughan]

I've always analyzed the 15 vs 30 case by case.  Sometimes the 15 rate is significantly less than the 30, like in 2012 when it was over 20% cheaper. 

In 2012 I refied a few 30s I got from 2003-7 in the high 6s to 15s in the low 3s. The discount was .75% then.

My criteria was the 15 had to be at least .6% less than a 30 when 30s were 5%.  That's 12%.  So my discount needed to do a 15 with rates at 7.2% today would be .86%. 

So many 30-only rooters completely dismiss the lower rate but that's where the magic happens.  A 15 payment is much less than double a 30 because of the discounted rate. 

I've paid off several 15s and don't regret going that way on any of them.  As long as you are fiscally secure enough to make that higher payment no matter what, when a 15 is paid off, a 30 still has like 70% left to go.  Mind-blowing @Jordan Blanton. 1 house alone the interest savings was $180k.