Loan term and property analysis

2 Replies

Can anyone explain to me if it is true that a certain loan amount will allow you to get a 15 year loan and not longer?
Also I asked Brandon Turner in an old post if his but not sure if he saw it, his Analysis seems based on a 30 year loan, how do those numbers change on 15year loan? Any advice will be great thank you

I think that commercial loans generally have shorter terms, I haven't personally gotten one.

As for an analysis, all you'd have to do would be to plug in a 15 year mortgage as opposed to a 30 year mortgage. Obviously with a 15 year mortgage, your monthly payment is going to be higher, but you'll gain equity faster.

So if you're planning on forcing appreciation through upgrades or repairs, it's probably in your best interest to have a lower mortgage payment. 

For instance:

You have a property worth $100k, you get an $80k mortgage and it cash flows for $200/month with a 30 year mortgage but it only breaks even with a 15 year mortgage.. You do some upgrades and sell it for 110k after 2 years.

30 year mortgage:

You've gained $2,883 in equity from mortgage payments, you've made about $4800 from cash flow, for a total of $7,836 just from cash flow and equity from payments.

15 year mortgage:

You've gained $8767 in equity from mortgage payments, and you've had $0 from cash flow.

I also have to say I'm not sure how taxes will effect these numbers, as I've purchased 2 of my 3 properties this year, and I converted my own home to a rental this year as well.

I'd say if you're planning on holding the property for a long time, it'd probably be better to have the cash flow to be able to either re-invest or to supplement your income. 

I'd like to hear what others think as well.

Edit: I'd also like to point out that with the cash flow on the 30 year loan, you'd also be able to do the improvements (depending on their cost) using that cashflow, instead of out of pocket, as opposed to the 15 year loan where you'd have to do them out of pocket.

Hi John, thank you for the great information, I think that the 15 year loan wasn't commercial, just my lender told me that based on the amount of the SFR I was buying, that I can only get a 15 year loan, that's the reason I was asking, if there is any laws that require so

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