15 year Mortgage Strategy

[Theodore Fleming]

Hey BP Community! 

This is my first discussion thread. Yay! 

My Question is in reference to the most recent BP Episode (BiggerPockets Podcast 290: 7 Paths to Financial Independence)

In the episode, Brandon and David discuss the 15-year Mortgage Strategy. Buy a house between 100-150K, put it on a 15year mortgage, repeat each year, then in 15 years Refi and pay yourself a tax-free salary.

This strategy is super appealing to me. My main question is what the best market for this strategy might be. 

The numbers:

$100,000 property on a 15year with 5% down @4.5%: PITI = $996

Estimated rent payment needed to "only" cover costs (as per the strategy): ~$1,500

$150,000 property on a 15year with 5% down @4.5%: PITI = $1,480

Estimated rent payment needed to "only" cover costs (as per the strategy): ~$2,000

This puts us at needing to find properties that will rent for ~1.5% of the purchase price. In my market (Washington, DC) that is basically unheard of (as is a $100,000 house). There are some properties like this in and around Baltimore, but most (if not all) of the properties in these price ranges require a flip to get into rentable condition. 

I am looking for recommendations for other markets to apply this 15-year strategy if anyone might have some.

All the Best,

TJ Fleming

[Shawn G Hope]

I think unless you are 100% confident in the market and vacancies it would be better to put it on a 30 year and pay the 15 year amortization as long as you have the rent to cover it. If the market drops and your still on the hook for the higher mortgage you may get more than you can handle. 

A 30 year at 4.5% with 5% down for just PI would be $467. 

A 15 year with all the same parameters would only be $696. 

So if your mortgage was being covered by rent then pay at a 15 year or pay more to get it less years. 

I just think it would put more risk in a 15 year mortgage.