How long are you financing properties?

Question

I am currently using a small local bank for financing my rentals. I am able to get 5% fixed for 10 years with an am of up to 30 years. I currently have them financed for 10 years. I don't have much cash flow each month. But, I do know they will be paid for in ten years. I keep a good amount of reserves so the small cash flow does not bother me.

I have started thinking about 15-25 year terms on my next purchases. I am just curios if anyone is willing to share what they do and their thoughts?

Thanks

Andy

I have started thinking about 15-25 year terms on my next purchases.  I am just curios if anyone is willing to share what they do and their thoughts?

Thanks

Andy

Joe Villeneuve · Answer

30 years for all of them...only because I can't get 50 year mortgages for all of them

Ron S. · Answer

15 to 20 year fixed loans. And with the hopes of paying down much earIier than that. Im all about paying off debt.  I know i am going against what seems like the majority here that prefers the 30 year mortgage. I am still able to make 20% coc returns on a 20yr loan and Im building equity quickly. My goal is early retirement and debt free living. So beat me up if you want, but its my plan and Im sticking to it!

Travis Sperr · Answer

10 rentals - all 30 yr loans - if I could do it again I would have done 15 year loans, instead I am using cash flow to pay them off. I would avoid anything that is not fixed for the term of loan - not likely rates get any lower than they are today.

Adam Johnson · Answer

If you are fixed for 10 years on a 30 year amortization you are doing well, in my opinion.  However, that doesn't necessarily mean that you have to be paid in full at the end of 10 years, it just means that you have to do something before the end of 10 years so that the lender is paid in full in 10 years.  This can be accomplished the way it sounds like you are currently doing (struggling to pay it off in 10), or you can simply refinance it before the end of 10.  If your mortgage allows, you may also be able to adjust the rate at 10 and keep going with the current lender.  The rate adjustment option is no unusual, so I would encourage you to read/understand your mortgage.  You may be causing yourself undue strain trying to pay it off in 10!  Just my 2 cents worth.

Fixed for 5 is very common in portfolio and commercial lending, fixed for 10 is less common in the same type of financing.  My experience has been that this is usually accompanied by description of terms by which the rate will adjust to the then current prime rate plus something.  It is simply a means for the lender to adjust what you pay for use of the money to be more in tune with the lending environment in the future.

Andy N. · Answer

@Adam Johnson

You are correct.  I have a ballon payment at the end of year 10.  I am just not sure if I want to start talking longer term loans to increase cash flows. I hear of people getting longer fixed terms but the longest I can get find is 10 years.

Adam Johnson · Answer

@Andy N. - I am curious if everybody is missing something here.  If I am reading your original post correctly, it appears as though you have either an adjustable rate mortgage, or you have a balloon payment.  If it is an ARM, you may only have a rate adjustment at year 10.  If it has a balloon payment, you may have to either re-finance or you may be able to request a renewal/adjustment at that time.

If my assumptions are correct, you don't necessarily HAVE to pay it off completely by the end of year 10, you just have to do SOMETHING by the end of year 10.

Please clarify your post a bit.

As to term, I generally run at a 15 or 20 year amortization and buy at aggressive prices to help keep cash flow healthy.

Chuck B. · Answer

Different banks for different classes:

Cheap houses under 50K - 20% down, 7 to 10 year loans, fixed at 6.4 for the first five

Houses that are 50K-100k - 10% down, 20 year loans, fixed at 4% for the first five.

Houses that are > 100K, 20% down, fixed for 30 years around 4% (typically purchased as owner occupied).

Arlan Potter · Answer

We have always done 10 year loans. The nice part about the 10 year pay out is that we have a big group of 30 houses that has only a $175K loan against them. Our apartments are on a 20% 5 year seller loan and 70% 20 year bank loan. But when we get the seller paid off we will add the seller payment to the bank payment and the apartments will pay off in a total of about 11.5 years. IFwe bought nothing else, we would have everything paid off in 10-12 years. That is a big IF because we just bought 2 properties in the last week.

We have also started using private money at 8%, interest only loans. Allows us to buy with no loan costs. After a while I bundle them and term them out for ten years.

It does help that I have other income streams, new home construction, and other. Make a smaller cash flow easy to work with.

Joe Villeneuve · Answer

...or, you can just let your tenants pay them off.  Can I hear 60 years?

How long are you financing properties?

Most Popular Reply