Is it really a great deal if it's on a 30 yr mortgage?
Member since 2024 · 31 posts · 11 votes
Is it really a great deal if it's on a 30 yr mortgage?
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesQuote from @Dav Pohote:
I have always looked for 15 year in the past but am wondering who here primarily does 30 years?
Obviously, they'll cash flow better, but you pay a ton more in interest on the backend. My whole thing in real estate has been to be in cash as soon as possible, but would like to hear the arguments from people who are happy to cash flow on a 30 year.
24 Replies
- Real Estate Agent · Central New York · Member since 2023 · 207 posts · 96 votes2y
I don’t have my own investment property yet, but I think i would be more likely to get a 30 vs a 15. With a 30 year mortgage, you can still treat it like a 15 year mortgage with double payments, lump sums, etc. you also have the flexibility of a lower monthly payment, so cash flow would be better and would free up more capital to invest elsewhere. A 15 year mortgage requires you to pay whatever the monthly payment is with no flexibility, with a higher payment. I guess one of the biggest things to consider is how long you plan to be in each specific property. If it’s a stable property, 30 years wouldn’t hurt but 15 years might lend itself to a riskier investment as you wouldn’t be tied to it as long.
- Member since 2024 · 31 posts · 11 votes2y
Quote from @Kiernan LaFaver:
I don’t have my own investment property yet, but I think i would be more likely to get a 30 vs a 15. With a 30 year mortgage, you can still treat it like a 15 year mortgage with double payments, lump sums, etc. you also have the flexibility of a lower monthly payment, so cash flow would be better and would free up more capital to invest elsewhere. A 15 year mortgage requires you to pay whatever the monthly payment is with no flexibility, with a higher payment. I guess one of the biggest things to consider is how long you plan to be in each specific property. If it’s a stable property, 30 years wouldn’t hurt but 15 years might lend itself to a riskier investment as you wouldn’t be tied to it as long.
The cash flow is solely to cover operating expenses and repairs. I'm not looking to make a living from it in the first 10 years or use it elsewhere. It's also not enough, say $15k/cash flow a year, to use in other properties.
The goal has been to get to a passive income place where you stop paying interest have cash flow from the rent money coming in. The down payment is the same for 15 yr and 30 yr, so are people with a ton of properties all on 30 yr?
- Real Estate Agent · Central New York · Member since 2023 · 207 posts · 96 votes2yInvesting is highly individualistic. What works for me may not work for you, ya know? While I may be more likely to do 30 and have the flexibility, your situation might be more geared towards the 15. Personally, I like the lower monthly payment with a 30 and then have extra expendable cash flow on top.
Quote from @Dav Pohote:
Quote from @Kiernan LaFaver:
I don’t have my own investment property yet, but I think i would be more likely to get a 30 vs a 15. With a 30 year mortgage, you can still treat it like a 15 year mortgage with double payments, lump sums, etc. you also have the flexibility of a lower monthly payment, so cash flow would be better and would free up more capital to invest elsewhere. A 15 year mortgage requires you to pay whatever the monthly payment is with no flexibility, with a higher payment. I guess one of the biggest things to consider is how long you plan to be in each specific property. If it’s a stable property, 30 years wouldn’t hurt but 15 years might lend itself to a riskier investment as you wouldn’t be tied to it as long.
The cash flow is solely to cover operating expenses and repairs. I'm not looking to make a living from it in the first 10 years or use it elsewhere. It's also not enough, say $15k/cash flow a year, to use in other properties.
The goal has been to get to a passive income place where you stop paying interest have cash flow from the rent money coming in. The down payment is the same for 15 yr and 30 yr, so are people with a ton of properties all on 30 yr?
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesYou're not paying the interest. Your tenant is. Your only cost is the csh you pay. The most important numbers is the lowest down payment, then followed by the lowest monthly payment.
Quote from @Dav Pohote:
I have always looked for 15 year in the past but am wondering who here primarily does 30 years?
Obviously, they'll cash flow better, but you pay a ton more in interest on the backend. My whole thing in real estate has been to be in cash as soon as possible, but would like to hear the arguments from people who are happy to cash flow on a 30 year. - Member since 2024 · 31 posts · 11 votes2y
Quote from @Joe Villeneuve:
You're not paying the interest. Your tenant is. Your only cost is the csh you pay. The most important numbers is the lowest down payment, then followed by the lowest monthly payment.Quote from @Dav Pohote:
I have always looked for 15 year in the past but am wondering who here primarily does 30 years?
Obviously, they'll cash flow better, but you pay a ton more in interest on the backend. My whole thing in real estate has been to be in cash as soon as possible, but would like to hear the arguments from people who are happy to cash flow on a 30 year.True, but after 15 years, it becomes an actual source of income.
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesIt's an "actual source of income" in year one.
Quote from @Dav Pohote:
Quote from @Joe Villeneuve:
You're not paying the interest. Your tenant is. Your only cost is the csh you pay. The most important numbers is the lowest down payment, then followed by the lowest monthly payment.Quote from @Dav Pohote:
I have always looked for 15 year in the past but am wondering who here primarily does 30 years?
Obviously, they'll cash flow better, but you pay a ton more in interest on the backend. My whole thing in real estate has been to be in cash as soon as possible, but would like to hear the arguments from people who are happy to cash flow on a 30 year.True, but after 15 years, it becomes an actual source of income.
- Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes2y
@Dav Pohote we like 30-yr as we considered the lowest initial investment (which were still 20-25% at the time), and lowest monthly payment for smaller effect on DTI to qualify for the next one. You can always pay more if you want to pay it down early, but it's a lower burden during crazy times you can't predict. We did choose a growth area to invest, and with rents increasing over the years, we did not have to wait 15 years to have more investment income, even with the mortgage payment.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Dav Pohote
The answer is it depends,
Currently you may be much better off at 15 years due to where interest rates are but when they were 3-4% you could have invested the delta between A 15 and 30 year payment and achieved a return better than the interest you were saving
It’s also a personal preference where people like to have less debt and sleep better at night - I am 100% with that being the reason to do 15 %
For example for us our primary is 30 year at 3% and we have a rental that we 15 year at 2.5% and reason we did 15 year on it was it matures the year my son will go to college and we did not “need” the cash flow during this time so we were like let’s have it paid off and then it’s cash flow can be used for his schooling or sell it to pay for school.
Lots of things to consider and each situation should fit your needs
7e investments53 Reviews - Investor · Cincinnati/Fort Thomas, KY · Member since 2015 · 207 posts · 183 votes2y
@Dav Pohote
I always look at the loan constant to help me decide between loans and their terms.
You can pay the 30 off in 15 years- it just gives you flexibility if there are some bad years but looking at the loan constant will help you decide if the increased interest rate is worth it.
Good luck!
You may have heard the phrase "Marry the property but date the rate..." I am a long term buy and holder.
I started with 30 year mortgages, but later refinanced into 15 years, and some 10 years when the government adopted the "Home Affordable Refinance Program" (HARP) at very low rates in response to the great financial crisis. I was never the one targeted by these programs, but the servicers went beyond the mandate and tried to refinance everyone they could.
For me the key in refinancing was not to take cash out and do not extend the duration of the loan. With 30 year loans you can still pre-pay principal if you want and wait to refinance into a 15 or shorter when the time is right and rates are lower. One of the nice things about a fixed 30 year mortgage is that it is a great inflation hedge.
- Member since 2024 · 31 posts · 11 votes2y
Quote from @Sandra Morrison:
@Dav Pohote
I always look at the loan constant to help me decide between loans and their terms.
You can pay the 30 off in 15 years- it just gives you flexibility if there are some bad years but looking at the loan constant will help you decide if the increased interest rate is worth it.
Good luck!
How do you calculate loan constant?
Say a 550,000 loan with 25% down at 10% interest on 15 yr vs 30 yr.15 yr monthly payment-- $4,400
30 yr monthly payment -- $3,600
Does not include property tax - 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
I think this is one of those things that comes down to your goals.
If your goal is "pay as little total interest as possible" - OK, buy in all cash or with a shorter mortgage.
But having a lower payment allows us to do other things with the money.
I don't only invest in real estate - I invest in ETFs as well. So I don't want to max out my mortgage payments.
But again - goals.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
was thinking about your guidance on another post, where someone was being told "put more down to cash flow." OK... but then, to your point, how long to recoup that 30% or 50% down payment?! 12 years? Longer?? buying just to buy "a deal," and then "cash flowing" $32 a month with 25 or 30 or 50% down does not make sense.
my point - it's good you're here to remind everyone of how this is actually supposed to work.
- 2yBrittany MinocchiBusiness MemberLender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
Me personally, 30 years all the way. I want the ability to pay it down faster without the obligation. I like flexibility. I also don't look at it as costing ME more in interest, because I'm not the one paying the interest. Depends on your needs/goals/preferences.
Brittany Minocchi - Barrett Financial Group, LLC522 Reviews - Member since 2020 · 217 posts · 167 votes2yI'm with the longer terms. Better cash flows and you can always pay off earlier. If a good deal comes up that I can only get 10 or 15 years, then interest only helps or if it's negative cash flow, get another with positive cash flow to balance things.
Seeing how 85% of my properties are seller financed or "subject to", sometimes I get terms that I can't change and sometimes I can dictate what I'll pay. - Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes2y
@Dav Pohote
I'd take 100 year loan if it was available in the US!
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes2y
All my commercial loans were 5/5/20. 5yr fixed, 5yr callable, 20yr am. Getting a fixed rate loan for longer than 5 years was the exception.
Maybe this is in the Commercial forum but just being asked in general?
If that's so, I got 30s unless the 15 rate was at least .6% less than the 30. Sometimes, like in 2012, the 15 rate was 20% less than the 30.
At least check the rate of the 15. Yeah, you can always accelerate a resi 30, but sometimes the 15 rate is so much lower a 15 makes sense. Case by case.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Dav Pohote:
I have always looked for 15 year in the past but am wondering who here primarily does 30 years?
Obviously, they'll cash flow better, but you pay a ton more in interest on the backend. My whole thing in real estate has been to be in cash as soon as possible, but would like to hear the arguments from people who are happy to cash flow on a 30 year.one thing you have been missing is the risk. The longer the duration the less risk it would be. Also they have influence to home price,DTI and appreciation.
In very high home price area, many times due to affordability crisis, only 30 Year is available. 15Y is out of the picture pretty quickly.
In medium high price area, for example, 300k-500k price range, and DTI is about 20% ; then 15 vs 30 are two solid choice.
The way I look at it again is not from cash flow. Assuming I do not want over-leveraging my DTI.
But I would example the rate of appreciation. Is the appreciation higher than the mortgage rate ? example, if your 30Y mortgage rate is 7%; 15Y mortgage rate is 6.5% and appreciation is 4%, then I would go with 30%. If the spread is 200bps then I would go 15Y.But If appreciation is 10% then I may go with 30Y.
Also 30YFRM give flexibility because you can always pay like it is 15 years, and second, as the value of the money is decreasing, then.....it's always good to go with longer duration as money going to be cheaper but would create more value in the future in term of wealth creation.
Having said that, at most of the time, the longer the duration would be better ....
better inflation
better risk/reward
I am almost about to say I could buy house for the reason of we are having 30Y fixed rate. - Member since 2024 · 31 posts · 11 votes2y
Quote from @Steve Vaughan:
All my commercial loans were 5/5/20. 5yr fixed, 5yr callable, 20yr am. Getting a fixed rate loan for longer than 5 years was the exception.
Maybe this is in the Commercial forum but just being asked in general?
If that's so, I got 30s unless the 15 rate was at least .6% less than the 30. Sometimes, like in 2012, the 15 rate was 20% less than the 30.
At least check the rate of the 15. Yeah, you can always accelerate a resi 30, but sometimes the 15 rate is so much lower a 15 makes sense. Case by case.
I'm specifically looking at commercial loans atm - 15 yr in the 9.5% range.
I've previously done all less than 4 units where I got residential mortgages at much lower rates that cash flowed well on 15 year.
Not the case here. Cash flow super tight on 15 year vs respectable on 30 year. Also allows me to have a placement company to deal with tenant headaches.
So I'm looking into being open minded to a 30 year and appreciate the opinions shared here. Don't want to force things in a meh market.
@Dav Pohote
This has already been stated, but I'll state it again and elaborate. Since this is a commercial REI post, the question seems a bit contradictory to the general commercial investment strategy. But, as has been stated, it depends on your goals.
Here are a few things to consider: how long are you planning to hold the asset? Over 15 years? Over 30 years? The longer you hold, the more Capex risk you have, above and beyond routine maintenance. Do you expect to live long past that time frame and be healthy enough to fully enjoy that great cash flow and deal with the landlord stresses? Are you investing to make money and live life on your terms? Or are you working to invest and want to continue investing by working for the capital? The later seems to fit many people when they do not consider the costs of capital... That is, they just keep working and trading their hours to save up more capital, versus the mindset of having the actual investment quickly repaying the capital.
These questions will lead you down the correct investment path for YOU. Because it's different for everyone. Because we all have different goals and operate with different mindsets towards investing. Some are data driven and profit driven, others are emotionally driven and have grand visions of great appreciation through long-term holds. Some are still trying to figure out what drives them. There is no one perfect solution, just as there are so many opinions.
My opinion, for commercial REI, is to first go with the easiest loan you can qualify for. Do not get picky if you are starting out, or else you will never start. Next, pick the terms that will mitigate your risks the most, which can mean terms with true cash flow 10 years down the road, or terms with cash flow now to recoup your capital. The first will require you to have another form of cash flow to sustain your lifestyle and future investing, commonly being a W2/1099 job. The latter will be pushed by your lack of a job or pursuit for quicker financial freedom.
I normally go with 5, 7, or 10 yr term, depending on rates. I have a few sub 4% at 10 yr, a few sub 6% at 5 yr, and even a 7.5% at 5 yr. Just got priced yesterday for 6.2%. it all depends on my EXIT strategy.
I always recommend an exit strategy. I would not want to be 60, 70, or 80 dealing with tenants, if I can help it.
For me, I go with those metrics and it often leads to short/medium term financing, amortized for 30, and often I/O. I do not have plans to pay off any of my current assets, I want cash flow and appreciation, and I want to stay financially free with the ability to continue to invest without a job.
As Joe has pointed out often, your tenants are paying the mortgage, not you. At least you should not be, if you pulled the trigger properly. If this is a business, it needs to be profitable, just it need to be self sustainable and generate cash flow. That's how a business is valued. Or else, you are collect properties and incurring risks without reward. I know it may trigger some if I say that appreciation is speculation, but it is still somewhat true. I don't bank on application, but I do try my best to control it and capitalize on it when appropriate. I am not in the business of collecting properties, but if I were infinitely rich, may be I would, but I'm not. REI is my business, and it is always a continual pursuit to make it more efficient. It must cash flow for it to be sustainable and revalued higher for equity extraction (appreciation play). If I were of the mindset that I buy with higher debt terms for the sake of quicker pay off and realize higher cash flow later, it would not be a business and I would likely still be working a job.
Many of the posters here are already financially free, but either chose to continue to invest, continue to work, or a combination of both, but not a necessity. I bet the folks that are financially free via REI will often have a different outlook on this subject from those that are depending on a job and are just collecting real estate.
- 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
Quote from @Dav Pohote:
Quote from @Steve Vaughan:
All my commercial loans were 5/5/20. 5yr fixed, 5yr callable, 20yr am. Getting a fixed rate loan for longer than 5 years was the exception.
Maybe this is in the Commercial forum but just being asked in general?
If that's so, I got 30s unless the 15 rate was at least .6% less than the 30. Sometimes, like in 2012, the 15 rate was 20% less than the 30.
At least check the rate of the 15. Yeah, you can always accelerate a resi 30, but sometimes the 15 rate is so much lower a 15 makes sense. Case by case.
I'm specifically looking at commercial loans atm - 15 yr in the 9.5% range.
I've previously done all less than 4 units where I got residential mortgages at much lower rates that cash flowed well on 15 year.
Not the case here. Cash flow super tight on 15 year vs respectable on 30 year. Also allows me to have a placement company to deal with tenant headaches.
So I'm looking into being open minded to a 30 year and appreciate the opinions shared here. Don't want to force things in a meh market.
I don't do MFH, but here are my financing considerations:
a. Above, tight at 15, better at 30. Also, you noted above your trying to cover operating costs and repairs. Problem with 30 years is somewhere in there you have to do a total rehab on the property. Roof, swimming pool, interior, exterior, driveways, landscaping, etc. Even if your property is brand new today, before 30 years you have to rehab or you lose value and tenants. Is that part of your 30 cash flow projection? Not just maintenance.
b. 30 is great from an inflation standpoint. You will be paying your debt off with cheaper dollars. Plus, your property value would have escalated if you maintained it, point "a" above.
c. Why is your interest rate at 9.5%? Why not 7%? What would be your terms on a 5/5/20-year amort period be?
d. What is the neighborhood like now? What will it look like in 20 or 30 years if you sell? What is the chance for devaluation? Or is it gentrifying and will escalate in value?
- Member since 2024 · 31 posts · 11 votes2y
Quote from @Henry Clark:
Quote from @Dav Pohote:
Quote from @Steve Vaughan:
All my commercial loans were 5/5/20. 5yr fixed, 5yr callable, 20yr am. Getting a fixed rate loan for longer than 5 years was the exception.
Maybe this is in the Commercial forum but just being asked in general?
If that's so, I got 30s unless the 15 rate was at least .6% less than the 30. Sometimes, like in 2012, the 15 rate was 20% less than the 30.
At least check the rate of the 15. Yeah, you can always accelerate a resi 30, but sometimes the 15 rate is so much lower a 15 makes sense. Case by case.
I'm specifically looking at commercial loans atm - 15 yr in the 9.5% range.
I've previously done all less than 4 units where I got residential mortgages at much lower rates that cash flowed well on 15 year.
Not the case here. Cash flow super tight on 15 year vs respectable on 30 year. Also allows me to have a placement company to deal with tenant headaches.
So I'm looking into being open minded to a 30 year and appreciate the opinions shared here. Don't want to force things in a meh market.
I don't do MFH, but here are my financing considerations:
a. Above, tight at 15, better at 30. Also, you noted above your trying to cover operating costs and repairs. Problem with 30 years is somewhere in there you have to do a total rehab on the property. Roof, swimming pool, interior, exterior, driveways, landscaping, etc. Even if your property is brand new today, before 30 years you have to rehab or you lose value and tenants. Is that part of your 30 cash flow projection? Not just maintenance.
b. 30 is great from an inflation standpoint. You will be paying your debt off with cheaper dollars. Plus, your property value would have escalated if you maintained it, point "a" above.
c. Why is your interest rate at 9.5%? Why not 7%? What would be your terms on a 5/5/20-year amort period be?
d. What is the neighborhood like now? What will it look like in 20 or 30 years if you sell? What is the chance for devaluation? Or is it gentrifying and will escalate in value?
Appreciate the insight!
a. that's what I keep cash flow for on properties until they're paid off - repairs , expenses and improvements. This property is already gutted to the studs so everything will be newish, but 30 years is a long time.c. This is the rate I got after looking around quite a bit. Anything over 5 units is classed as commercial and not privy to residential rates. It's also not occupied now (as it's down to studs), so I have to get a short term loan for the remodel (4-6 months) then refinance to conventional commercial. It'd be great if you linked to more info on a 5/5/20 because I didn't know about that.
d. it's gentrifying, pretty rapidly. newly built townhomes have sprung up around it. Brings in people who don't miss payments. new constructions all over the place. I guess you could say it was class c and is on it's way to class B.
- Lender · United States · Member since 2020 · 1k+ posts · 499 votes2y
Less than 10% of people with a mortgage will hold the property or note for the full 30 years. You'd be ignoring the pro's of real estate investing if you let a mortgage run for 30 years without refinancing the equity out every 5-10 years.
- 12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes2y
Their interest is a write off . if you refinance amortization schedule resets regardless
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