Financing for Long Term Investing

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Many of the real estate investors I talk to these days are buying for the long term hold. In fact, most don’t have a set time-frame in mind, they just know they want to hold properties as long term investments.  But “a long term investment” for one investor might be very different than for another.  I think many investors these days consider anything over 7 years as a long term hold (especially when you compare this to the type of appreciation and quick-flip investing that was popular during the early 2000’s).

However, I think there are plenty of other investors who are truly interested in owning property long after the mortgage has been paid off.  For these investors, the goal of the investment is less geared towards short term cash flow and more about owning an asset that will produce cash flows farther down the road, especially once the mortgage has been paid off.

While I would not necessarily say there is one strategy better than the other, I would say that an investor should be mindful of the true objective of their investment when deciding what kind of financing to obtain.  I would venture to guess that most investors these days are buying with the intention of selling in 5- 10 years with the possibility of capturing some upside from a recovery in housing prices. For these investors, obtaining a mortgage with a longer amortization (ex. 30 years) and the lowest possible monthly payment would be a great way to capture immediate cash flow. While the principle would not be significantly paid down during this 5-10 year hold, the cash flow that was generated and potential equity (from recovering prices) could help them achieve their investing objectives.

For the other group of investors who are truly interested in a “long term investment,” the type of financing they might consider should look different.  If my goal was to own a house outright as quickly as possible so I could generate real income from the property for years to come, I would sacrifice current cashflow in favor of principle paydown (another way to achieve equity buildup).  To do this,  I would take a hard look at the amortization length and weigh my comfort level  as it relates to monthly cashflow (or perhaps even negative cashflow if I’m highly motivated to pay off the mortgage quickly).

A quick example:

A $100,000 investment at a rate of 5% interest on a 30 year fixed loan would have a principle and interest payment of $536/mo. This may generate nice cashflow for me, but when I start paying on this loan, only $120/mo is actually going towards principle. Even after 10 years of paying on this mortgage, I’m still only paying $199/mo towards principle.

However this same investment, with the same interest rate on a 15 year loan would look quite different. While my monthly payment is higher at $790/mo … I begin to see equity buildup at a much faster rate. My principle paydown is $373/mo initially but jumps all the way to $616/mo by year 10.

Also interesting to note is the fact that after 10 years, I will have paid $46,100 worth of interest on the 30 year note as opposed to $37,000 in interest on the 15 year note – a difference of over $9,000 worth of interest in just 10 years.

Again, let me stress that I am not advocating one strategy over another. I simply believe in the importance of fleshing out your investment strategy before deciding what kind of financing to put in place. Too many investors obtain mortgages that simply don’t line up with their true investing objectives – especially when it comes to long term investing.  If you are an investor who plans on owning property for a very long time, let me encourage you to crunch the numbers on a shorter amortization schedule and consider sacrificing short term cashflow for future income.

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.


  1. My plan is to continue working my day job while I put all the rent towards my property (should take 8-10 years). Then, when it’s paid off, I can borrow off of it to buy three more properties. After paying those off with all the rent (another 8-10 years), I should be able to receive a nice, health cash flow and consider whether or not to retire my day job.

  2. is there any down side to taking out a 30 yr note and paying extra on the loan to get the benefit
    of a shorter morgage length and the cushion of a lower monthly paymant if needed if there was an emergancy or vacancy

    • To build a retirement income, I have only bought properties that have a positive cash flow on a 15 year mortgage with hopes to pay them off in 10. 11 bought so far, 4 paid for.

    • Paul,

      This is what I do. The only downsides I see are the slightly lower interest rates with 15 year mortgages and discipline. Few folks have the discipline to pay extra every month. Emergencies seem to always come up for those not skilled in managing their rental finances.


  3. Rusty Thompson on

    In my opinion you are asking for trouble with a 15 year mortgage. Yes you get a lower interest rate & a “guaranteed” quicker payoff. But you also don’t have the flexibility to pay less if you get in trouble. I prefer to have a lower mandatory payment & have the option to pay it down quicker if I choose. That 250$ a month can then be used towards purchasing more cash flowing properties. When I reach my property # goal I will then focus my extra cash flow to pay down the highest interest rate properties. Its a much lower risk plan than trying to get everything paid off right away.

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