Those who finance investment properties
Denver, CO · Member since 2017 · 142 posts · 104 votes
Always go with the 30...and the lower payments. Your goal with a rental is cash flow...not the payoff. Your tenants pay off your property for you. You are not saving interest, you are losing cash flow. You are thinking like a homeowner and not like an investor.
For myself the decision comes down to simple math. I can achieve a 10% return long term easily through many different vehicles. Since I am looking for income that is what drives my decision.
If I have 2M invested I expect to earn $200,000K / year income.
If that 2M is in 10 paid off properties then the first $200000K income from those properties is generated by my own cash not the property. That would average out to $1666/month positive income per property. Assuming expenses are in the 50% range rent on each property would need to be in the range of $2500/month for the property to break even after paying a return on my money. To make my time and effort worth while the rents on each property would need to be well north of $2500/month. If they are not then the properties themselves are a liability and not worth owning. There are better passive vehicles to invest in.
This is why I leverage to the maximum, collecting positive cash flow with a lower rent threshold, on each property while paying a low interest rate mortgage. Meanwhile my 2M is invested elsewhere to generate my 200K income. No way cash investors make the income levels of leveraged investors. Those looking to retire on their real estate incomes should keep this in mind. Additionally if the markets turn, assuming you have invested wisely, you can still carry your properties or worse case the bank loses their money instead of you losing your money.
Bottom line is hyper conservative investors receiving minimum ROI by squirreling their cash away in a property may sleep well at night but I sleep very well reassured that I will not lose my cash in a real estate market shift.
More money definatly buys me more happiness.
For myself the decision comes down to simple math. I can achieve a 10% return long term easily through many different vehicles. Since I am looking for income that is what drives my decision.
So you don't shift your approach at all as you get older, and have less time to build up another fortune? The conventional wisdom is that the older you are, the more you need to preserve your capital. It sounds like it never matters to you. I don't know how old you are, but if you lost all your capital at the age of 70 due to a catastrophic market event, realistically would you be able to start all over again from nothing?
For myself the decision comes down to simple math. I can achieve a 10% return long term easily through many different vehicles. Since I am looking for income that is what drives my decision.
So you don't shift your approach at all as you get older, and have less time to build up another fortune? The conventional wisdom is that the older you are, the more you need to preserve your capital. It sounds like it never matters to you. I don't know how old you are, but if you lost all your capital at the age of 70 due to a catastrophic market event, realistically would you be able to start all over again from nothing?
I can answer that...yes.
So you don't shift your approach at all as you get older, and have less time to build up another fortune? The conventional wisdom is that the older you are, the more you need to preserve your capital. It sounds like it never matters to you. I don't know how old you are, but if you lost all your capital at the age of 70 due to a catastrophic market event, realistically would you be able to start all over again from nothing?
I can answer that...yes.
You're speaking from experience? Sounds like a podcast-worthy story. Do you have an article or post where you've already written about it? If you see no need to preserve capital, then I agree you might as well get yourself leveraged to the hilt. But can you agree with me that many others may be in a position that they simply can't start over again (age, disability, etc.), and for them, it makes sense to take a more conservative approach?
So you don't shift your approach at all as you get older, and have less time to build up another fortune? The conventional wisdom is that the older you are, the more you need to preserve your capital. It sounds like it never matters to you. I don't know how old you are, but if you lost all your capital at the age of 70 due to a catastrophic market event, realistically would you be able to start all over again from nothing?
I can answer that...yes.
You're speaking from experience? Sounds like a podcast-worthy story. Do you have an article or post where you've already written about it? If you see no need to preserve capital, then I agree you might as well get yourself leveraged to the hilt. But can you agree with me that many others may be in a position that they simply can't start over again (age, disability, etc.), and for them, it makes sense to take a more conservative approach?
Everyone has their reasons why they do or don't do things...and the the person who is or isn't doing it, those reasons are valid to them. That doesn't mean those reasons are valid to everyone else, or for that matter, anyone else.
Age, disability, etc....are not hindering factors to any future success here. The only thing that hinders them, or anyone, is their lack of knowledge.
Many think they have the knowledge it takes, or that it doesn't exist, or they make the biggest mistake of all, and listen what is thought of as the greatest expert of all things in the universe...someone named "everyone"...a.k.a. "everybody". There is nobody that is referred to more as an expert,..as in "everyone/everybody knows", and in my mind nobody that is more of a deterrent to success. I call this person the "ruiner of great dreams".
It can be done, faster than you might think. You just need to put together a solid network and team of partners, and learn the three most important bases of knowledge there is in REI:
1 - How Money Works. This is where almost all REI think they are pretty good at, but are in fact sorely lacking. This tells you How to Invest.
2 - Market (not Property) Analysis. Most REI chase properties. I find Markets, micro-markets to be exact, and the properties find me. This tells you Where to Invest.
3 - REI Plan. Here is another misconception. Plans, goals, milestones, and steps along the way is what keeps you on the straight and narrow, and not get detoured by shiny objects of distraction. This tells you When to Invest.
I get #2 and #3. I think I get #1, but please send a link to an article that explains "How Money Works" in manner in a way that you agree.
I get #2 and #3. I think I get #1, but please send a link to an article that explains "How Money Works" in manner in a way that you agree.
I wrote a couple of articles on this a number of years back, but they are somewhat outdated now. They're still valid, but I've made adjustments to the system since I wrote them.
Understanding how money works is a 3 part process:
Part 1 is understanding the 2 Golden Rules.
Part 2 is understanding the difference between what many would consider to be "synonyms", but I would label them as "antonyms". The basis in the difference is just a mindset difference between thinking like an investor and not like a homeowner. A short list:
* Debt/leverage
* Cost/expense
* Lineal Path/Compounding
* Cash/Cash-like-substance
* Useful equity/useless equity
* Strategies: Entrance/Exit
* Seed Money/Profit
Part 3 is developing systems to apply creative funding to...the key is the word "system", that follows the Golden Rules without wavering.
Not once have I seen anyone address debt to income ratio.... With higher cash flow on a 30 year, your debt to income ration increases with each property.... Meaning it will be easier to continue to make acquisitions. The 15 Year may cost less, but at the expense of not making more acquisitions, which is my strategy.
You don't actually save the extra hundred bucks a month from the 30ty to deploy, what it does is increase your ability to buy by making your debt to income ratio more attractive/intact. Or am I wrong here?