Financing - what is best?

5 Replies

I'm buying my first investment property and looking for a little help. I'm in a debate with my partner on whether we should take out a 20 or 30 year term and if putting down 25% or 30% makes more sense. Their argument is that we will "save" around $50,000 if we do the 20 year term, and put 30% down, as it will pay off the loan faster even though the monthly payment is $200 higher. My argument is that we're not paying out loan, the renters are. I'd rather have the additional cash flow and only put down 25% so we have more money to put back in the business to keep buying more properties. I'm sure their are arguments on both sides, but any advice on which direction we should go would be great. Our strategy is buy and hold. Thanks

You should consider whether you want to be partnering with him or not. He does not understand investing principals and is viewing your investment like a personal home. If you can not get him around to your thinking you need to seriously consider if he is a good fit for you as a investor.

He, like many others on here, do not have a clue how investing in income properties works. Each to their own but if you want to make maximum returns you will need to get him to learn how investing really works. 

Thanks for that. So i'm assuming you agree with my line of thinking. My other thought on my strategy was this... After 5 years, taking the property that has appreciated the most, sell it, use that money to continue buying larger investment properties. Any thoughts on that or a different strategy that you're using? I was also thinking about just refinancing and pulling out the equity, however, i'm not sure i can break even with the rents i'm getting on the larger loan amounts. 

If you make a greater return on investment than your cost of debt, then you should go for the 30-year deal with 25% down if that's available. If you can't get a better return on investment than debt cost, you shouldn't do the deal.

@Dan Scott , not sure the size of the properties you are looking at, but we put down 20% for a 30 year term on the SFR properties that we purchase. We can always refinance down the line or pay down the mortgage faster if we so choose, but overall we are looking to use the least amount of money while still obtaining positive cashflow when purchasing properties.

Dan,

I think your reasoning is sound, putting less money down. Getting as much cashflow and then selling! 

I would agree with Thomas, you guys should have similar investing beliefs, when going into a partnership. Especially if you are thinking long term!

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