First Rental Property (Duplex) / Loan Question

2 Replies

A little on me first, yy wife and I are in our Mid 30’s.  We are debt free expect for our current house we live in.  The past 2 years I have been saving cash and researching real estate investing.  I now have my 20% cash to purchase my first rental.

I am buying my first rental property, I decided to go with a Duplex (with current tenants @ $775 per unit).I have been crunching a lot of numbers. Annual income for the property is $18,600 – I am giving myself a 7% vacancy allowance so the adjusted annual income is $17,280.After Taxes, Insurance, mortgage and property management the NOI is $1338 or $111 per month --- This is with a 15 year note. If I use the same numbers but change the loan to a 30 year my NOI goes to $7908 or $659 per month.

If I do the 30 and pay an extra $200 a month to the principal this brings it down to a 17.6 year note.  Given this is my first rental property, I want it to be a blessing not a burden.  I feel more comfortable doing the 30 year note and paying extra.

A friend of mine says I should do the 15 year

Hey @Nick Weidner  

The answer to this question really comes down to your goals.  Do you want more cash flow but stretch the payments out or do you want less cash flow and pay it off sooner?

Leverage is one of the greatest tools that is available to RE investors.  Just try going to the bank and getting a loan to invest in the stock market! HA  You will be laughed right out of the bank!

Because of this, we can use debt wisely to greatly increase our returns.  What I would do if it was me personally would be put it on a 30 year note and use that cash flow to eventually buy a second property.  This is truly the compounding effect that will allow you to grow your portfolio quicker than paying one off then buying another and so on....

Also remember, your NOI doesn't change based on your debt service. No matter what loan you chose your NOI will be the same. What changes is the after debt service cash flow. I don't want you to confuse this idea.

Good Luck!

Hello Nick,

I think you answered your own question.  If you pay the extra money on your loan it will go down faster and if you ever run into financial problems you'll have a 30 yr and not a 15 yr loan.  You can still achieve what you want with a 30 yr note and have the benefit of a lower payment just incase you need it from month to month.

Shaun Weekes, Innovation Lending Solutions | [email protected] | 949‑610‑3126 | | CA Agent # 0L51686