Rental real estate strategy with 3k monthly savings 15 year loans

37 Replies

Originally posted by @Thomas S. :

"I want paid off properties just in case for whatever the future brings"

"JUST IN CASE FOR WHATEVER" …. My impression is that you are NOT risk tolerant and my advice would be to stay away from real estate investing. It is always high risk and attempting to achieve your present goals and sleep at night are not compatible in this game.

You will not achieve the security you want without jeopardising your ultimate goals.  Realistically you would be farther ahead  with a truly passive investment rather than having the stress of either managing real estate/tenants or a PM. Having income properties paid off places your cash in a very high risk category, when markets turn or lawsuit leaches attack you will lose your money. Better to leverage the properties and invest the cash elsewhere if you have no use for it. Diversify. 

 I can handle stress we have over 3 restaurants inthe family ... stuff happens things take down turns randomly .. been there done that with dumb lawsuits customers/ employees have thrown at us 

I guess thats why im so cautious honestly that plus the main reason i see real eatate as a safer investment and why im am here on this forum is ... my parents have 2 single family  rentals and one commercial building (they paid off in 5 years with restaurant profits) cash flowing 1000 each house and commercial cash flowing 3,500 freely and its a piece of mind they always have extra money coming in with payment free properties 

I guess since i grew up seeing that side of passive cashflow I’ve always thought wow they have zero payments and they get all this money flowing monthly (obviously not a great sum) but you get what i mean

Okay ill probably start going 30 year notes but just for the sake of peace of mind forsure im gonna be paying them off sooner if economy starts shaking

Again im here for the long haul in about 4 months ill be looking for property #2 so yall shall see me again here

Originally posted by @Jorge Leon Jr :
Originally posted by @Thomas S.:

"I want paid off properties just in case for whatever the future brings"

"JUST IN CASE FOR WHATEVER" …. My impression is that you are NOT risk tolerant and my advice would be to stay away from real estate investing. It is always high risk and attempting to achieve your present goals and sleep at night are not compatible in this game.

You will not achieve the security you want without jeopardising your ultimate goals.  Realistically you would be farther ahead  with a truly passive investment rather than having the stress of either managing real estate/tenants or a PM. Having income properties paid off places your cash in a very high risk category, when markets turn or lawsuit leaches attack you will lose your money. Better to leverage the properties and invest the cash elsewhere if you have no use for it. Diversify. 

 I can handle stress we have over 3 restaurants inthe family ... stuff happens things take down turns randomly .. been there done that with dumb lawsuits customers/ employees have thrown at us 

I guess thats why im so cautious honestly that plus the main reason i see real eatate as a safer investment and why im am here on this forum is ... my parents have 2 single family  rentals and one commercial building (they paid off in 5 years with restaurant profits) cash flowing 1000 each house and commercial cash flowing 3,500 freely and its a piece of mind they always have extra money coming in with payment free properties 

I guess since i grew up seeing that side of passive cashflow I’ve always thought wow they have zero payments and they get all this money flowing monthly (obviously not a great sum) but you get what i mean

Okay ill probably start going 30 year notes but just for the sake of peace of mind forsure im gonna be paying them off sooner if economy starts shaking

Again im here for the long haul in about 4 months ill be looking for property #2 so yall shall see me again here

 The goal of maximizing your CF is a great goal.  That's not the problem we see in your strategy.  The problem, is the path you're trying to follow to get there.

Originally posted by @Jorge Leon Jr :
Originally posted by @Thomas S.:

"I want paid off properties just in case for whatever the future brings"

"JUST IN CASE FOR WHATEVER" …. My impression is that you are NOT risk tolerant and my advice would be to stay away from real estate investing. It is always high risk and attempting to achieve your present goals and sleep at night are not compatible in this game.

You will not achieve the security you want without jeopardising your ultimate goals.  Realistically you would be farther ahead  with a truly passive investment rather than having the stress of either managing real estate/tenants or a PM. Having income properties paid off places your cash in a very high risk category, when markets turn or lawsuit leaches attack you will lose your money. Better to leverage the properties and invest the cash elsewhere if you have no use for it. Diversify. 

 I can handle stress we have over 3 restaurants inthe family ... stuff happens things take down turns randomly .. been there done that with dumb lawsuits customers/ employees have thrown at us 

I guess thats why im so cautious honestly that plus the main reason i see real eatate as a safer investment and why im am here on this forum is ... my parents have 2 single family  rentals and one commercial building (they paid off in 5 years with restaurant profits) cash flowing 1000 each house and commercial cash flowing 3,500 freely and its a piece of mind they always have extra money coming in with payment free properties 

I guess since i grew up seeing that side of passive cashflow I’ve always thought wow they have zero payments and they get all this money flowing monthly (obviously not a great sum) but you get what i mean

Okay ill probably start going 30 year notes but just for the sake of peace of mind forsure im gonna be paying them off sooner if economy starts shaking

Again im here for the long haul in about 4 months ill be looking for property #2 so yall shall see me again here

Just go buy with 15 year mortgages lol.  Everyone is telling you and explaining it and you just say the same thing.  That’s fine just go do that 

@Jorge Leon Jr I would start with 30year loans while you are in aquisition mode. Later when you get better at all the aspects of the game you can consider prepaying, refinancing, portfolio loan, and other pay down ideas. Good luck. Focus on one thing at a time as you learn.

Although I agree with Joe V, if you are determined to pay down early I highly recommend staying with 30 year notes.  Any online mortgage calculator can help you find the 15 year payment if you want to pay extra monthly.  The advantage to this method is that you are not locked in to the higher payment.  If times get tough, you still have a lower payment that you can fall back on.  

Jorge,

Congratulations!  You've done more then most people who just talk, over-think, over-analyze and end up doing nothing with real estate or any of their goals for that matter.  You've gotten some great input from our fellow BP members.  I agree with the thought of financing your investment properties with 30 yr. notes and pay them down as you feel works for your situation.  If you hit a bump, you fall back on your lower 30 yr monthly payment.  If you're doing well you have the ultimate decision on paying down your debt more aggressively.  Getting an education with BP Podcasts, feedback from fellow investors, etc. is a great decision on your part.  Personal development is a key component for any successful person.  As Jim Rohn said, "a college education will get you a job, a self-education will make you wealthy."

We've all gone about our real estate investing somewhat differently as we've built up our portfolios.  And that's fine!  It's your business to drive and grow.  A recommendation for you, if you haven't done it already, is to write down your goals on paper as a road map to follow and execute on.  One small aspect of it would be your financing and pay-off strategy/goals.  Brandon Turner has a very helpful goal setting document which he shared on one of his webinars.  I believe it was something like, "Making 2018 Your Best Real Estate Investing Year Ever!"  He also has a great book on real estate investing which you can get at BP ("The Book On Rental Property Investing").  A couple of other books for your consideration - "The One Thing," by Gary Keller, "The Millionaire Fastlane," by MJ DeMarco, "The 10X Rule," by Grant Cardone, and "Rich Dad's Cashflow Quadrant, A Guide to Financial Freedom," by Robert Kiyosaki.

Best of luck and keep pushing.

I think it doesn't really matter which you choose right now. You will probably refinance multiple times over the years. If the 15 year loan still gives you good positive cash flow then that will be a good approach. It might not be the maximum cash flow, but it might be good enough for you. If your savings rate of $3K monthly is enough for you to buy your next property when you want to, then the additional you can save (in a liquid form) from a 30 year loan won't be necessary. It depends on your market and your acquisition goals.

I started off in 2001 with three 30 year loans.  I've refinanced many times to pull cash out, as our plans changed quite a few times in the past 18 years - in ways we couldn't predict. With every refi we saved a lot of money. Interest rates were going down.

Sometimes we chose 15 year loans, sometimes shorter or longer terms. The choices are not only 15 or 30. You can get a 20 year loan. I have one. Today I have 4 loans, with 11-18 years remaining on an assortment of original terms (30 ARM, and fixed 20, 15, 12). Nothing over 4% interest.

If/when you refinance, look for very low closing costs. Our primary residence is a 12 year 2.8% loan that had $149 in closing costs. We arranged all of the cash flow so that all of our rental income is enough to pay 100% of our other bills (including primary residence mortgage and property tax and insurance), with even some left over. 100% of our day job income goes to retirement savings.

Starting at 25 years old, you'll do really well, no matter what route you choose.

If the properties pay for themselves with the rents they generate, it doesn't matter what happens with the economy. The economy can crash and your values can plummet... So what? That only matters if you try to sell at that time. You're only screwed if you can't fill your places with paying tenants. Did that happen during the last crisis? I don't know but I don't think so. Seems like when people lose their homes they become renters.

@Jorge Leon Jr Looks like you and I are in a very similar situation financially as far as goals and our rate of savings. I’ll always go with a 30 year loan. I don’t care how long the note is when the tenants are paying them for me. I plan to get my 10 conventional mortgages, then snowball to pay one off. After that I’ll buy another and repeat. The plan is to always carry 10 conventional mortgages. Once one is paid off it will stay free and clear.
Originally posted by @Paul C Mead :

Jorge,

Congratulations!  You've done more then most people who just talk, over-think, over-analyze and end up doing nothing with real estate or any of their goals for that matter.  You've gotten some great input from our fellow BP members.  I agree with the thought of financing your investment properties with 30 yr. notes and pay them down as you feel works for your situation.  If you hit a bump, you fall back on your lower 30 yr monthly payment.  If you're doing well you have the ultimate decision on paying down your debt more aggressively.  Getting an education with BP Podcasts, feedback from fellow investors, etc. is a great decision on your part.  Personal development is a key component for any successful person.  As Jim Rohn said, "a college education will get you a job, a self-education will make you wealthy."

We've all gone about our real estate investing somewhat differently as we've built up our portfolios.  And that's fine!  It's your business to drive and grow.  A recommendation for you, if you haven't done it already, is to write down your goals on paper as a road map to follow and execute on.  One small aspect of it would be your financing and pay-off strategy/goals.  Brandon Turner has a very helpful goal setting document which he shared on one of his webinars.  I believe it was something like, "Making 2018 Your Best Real Estate Investing Year Ever!"  He also has a great book on real estate investing which you can get at BP ("The Book On Rental Property Investing").  A couple of other books for your consideration - "The One Thing," by Gary Keller, "The Millionaire Fastlane," by MJ DeMarco, "The 10X Rule," by Grant Cardone, and "Rich Dad's Cashflow Quadrant, A Guide to Financial Freedom," by Robert Kiyosaki.

Best of luck and keep pushing.

 Only book im missing is “the one thing” slowly but aurely going thru them one at a time and other books others have suggested, thank you! I appreciate it BP is the best thing i have found and wished i had found it 5 years ago right now slowly getting in there and taking itall in

Originally posted by @Joe Villeneuve :
Originally posted by @Douglas Pollock:
@Douglas Pollock. I forgot to add something. For the sake of comparing payoff vs cashout, comparing the yearly cash flow, ROI, COC, etc against what that equity does while having 2nd, 3rd, 4th, etc properties would absolutely give all newcomers something to ponder. Personally, I think finding, financing, buying, rehabbing, and either selling or renting a house is easy to learn. The hard part is determining how to work your money over time. Time value of money, comparing investment vehicles, etc are tougher.

 Two things to add:

1 - Way too many people have no understanding at all how money works.  If they did, they would understand the importance of this number sequence:  1073741824

2 - Way too many REI were 100% correct when they were in their math classes, complaining about why they had to learn math since "they were never going to use it".

 what does "1073741824" mean? 

if youre going with a 15 year loan so you can pay it off within 15 years for the what if.... what if the "what if" happens in year 5, now you're stuck with a higher monthly mortgage payment than a 30 year, and by extension, less cashflow to help out with the "what if"

Originally posted by @Chris C. :
Originally posted by @Joe Villeneuve:
Originally posted by @Douglas Pollock:
@Douglas Pollock. I forgot to add something. For the sake of comparing payoff vs cashout, comparing the yearly cash flow, ROI, COC, etc against what that equity does while having 2nd, 3rd, 4th, etc properties would absolutely give all newcomers something to ponder. Personally, I think finding, financing, buying, rehabbing, and either selling or renting a house is easy to learn. The hard part is determining how to work your money over time. Time value of money, comparing investment vehicles, etc are tougher.

 Two things to add:

1 - Way too many people have no understanding at all how money works.  If they did, they would understand the importance of this number sequence:  1073741824

2 - Way too many REI were 100% correct when they were in their math classes, complaining about why they had to learn math since "they were never going to use it".

 what does "1073741824" mean? 

 When asked what the greatest invention of the 20th century was, Einstein replied, "compound interest".  Then he said something even more important.  "Those that understand it, will live off of those that don't".