20 or 30 year loan for investment properties

Private Lending & Conventional Mortgage Advice
5yFollow

20 or 30 year loan for investment properties

Joe M.
Member since 2020 · 17 posts · 5 votes

Hey! I have a property I’m looking to buy. One bank is lending over 30 years and the other over 20. With the 30 year, my cashflow is much higher. The 20 year lender is trying to convince me a 20 year loan is better for investment properties and if the numbers don’t work well at 20 years then it’s not a good enough deal. Initially, I was leaning toward 30 year so I have more cashflow. Thought? Thanks!!

1Reply
37 views

10 Replies

Jump to latestLatest
  • Joshua Jarrett
    Accountant · Indianapolis, IN · Member since 2019 · 20 posts · 3 votes
    5y

    I would definitely go with the 30 year. I can't see any reason to go with a 20 year in this situation.

    0Reply
  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    5y

    30 year loan. It is a fixed rate so you can always pay it down quicker if you want. No need to get locked in with aggressive payments. 

    0Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    5y

    Banks are great at pushing their products.  At the end of the day, you use your numbers to see what makes sense for your goals.  Don't let the bank push you into one way or another if your numbers don't agree.  I don't see how they could in this case.  30 year all the way...

    Nick

    [email protected]
    Belsky Mortgage, LLC527 Reviews
    WebsiteView Page
    0Reply
  • Reid Chauvin
    Lender · Nashville TN - Licensed in AL AR DC FL GA LA MD TN, TX and VA · Member since 2021 · 583 posts · 338 votes
    5y

    The only reason the 20 year product MIGHT be better is if the interest rate they offer is significantly lower (which is usually not the case on 20 vs 30). I would thing opting for the lower, more conservative payment would make the most sense in this situation, (you have to think in terms of having to potentially cover the payment out of pocket if for some reason you were unable to rent for a month or so). 

    0Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    5y

    @Joe M. maybe there is some case to use the "portfolio" loan with the 20 year loan...but all things being equal, the 30 year fixed is the way to go.  And just in case why there is a difference generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

    Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

    Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.

    Hope all of that makes sense but feel free to ask anything additional if you need.  Thanks!

    0Reply
  • Joe M.
    OP
    Member since 2020 · 17 posts · 5 votes
    5y

    @Joshua Jarrett thank you!

    0Reply
  • Joe M.
    OP
    Member since 2020 · 17 posts · 5 votes
    5y

    @Caleb Brown thanks!

    0Reply
  • Joe M.
    OP
    Member since 2020 · 17 posts · 5 votes
    5y

    @Nick Belsky thanks!

    0Reply
  • Joe M.
    OP
    Member since 2020 · 17 posts · 5 votes
    5y

    @Reid Chauvin thanks!

    0Reply
  • Joe M.
    OP
    Member since 2020 · 17 posts · 5 votes
    5y

    @Andrew Postell thanks!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free