40 year mortgages good?

[Nicholas Mahon]

Hi BP Carebears!

I'm looking at purchasing my first multi-fam rental property to create cashflow. The area is the Jersey City, which has pretty low prices considering its proximity to NYC and values will be climbing significantly in the next 5-10 years. However, when I put these homes through the handy-dandy BP Cashflow Calculator, the cashflow seems to range from -$100 to +$100, with cap rates very low. Here are the reasons I think this is happening:

- I'm trying to only do 3.5% down (FHA), which elevates my monthly expenses.

- Although prices are low, rents in the Bergen-Lafayette neighborhood are also still low.

- High property taxes in NJ

The first time homebuyers assistance program that I'm considering working with, MAHNY Management, is able to get 40 year loans to help people lower their monthly. When I redo the cashflow calc with a 40 year mortgage, it really helps the numbers.

My question to you guys is, what are your thoughts/experience with 40 year loans? I know you spend allot more in interest, but I'm not planning on keeping this home that long. Maybe selling in 5-10. This seems like a good way to go, but I'm pretty unexperienced and need the input of smarty pants.

Thanks in advance everyone for taking the time.

Best,

Nicholas

[Upen Patel]

@Nicholas Mahon As far as I know FHA does not have a 40 yr mortgage.

While the 40 yr mortgage might better your cash flow, you are paying a lot more in interest and increase the risk, as it will be a long while before you truly start paying off the principle.