Gansevoort, NY · Member since 2016 · 14 posts · 0 votes
I'm not sure if there is "one" answer to my question. However I'm not sure how one should determine cash flow on a SFR or small multi family Buy and Hold. Specifically in regards to the term of the mortgage. Is it common practice to amortize your loan over 30 years or something less? Because I am a bit older (late 50's) I was hoping to cash flow with a 15 to 20 year note so as to quicker build equity while still being profitable. Is it as simple as, "do you want cash flow?" or "do you want to build equity?" I'm just trying to determine what is the best business practice.
You're not building equity when you make the payments shorter. All you're doing is reducing your cash flow (instant profit) and transferring your wealth from a liquid form (cash) to a solid object (reduced balance). It's the same money...just s different form.
When you let your tenant make the payments (rent) and keep more of the cash flow (profit) you are ahead.
Cash/money is a verb and built up equity is a noun. Cash as a verb, in motion, brings in a compounded return. Cash as a noun brings in no return. It's the same value going in as it is when it "dies" in the house.
Andrew's opinion seems to be the trend here on BP: amortize over 30 years and overpay as desired. It will shorten the term but allow flexibility should you hit unexpected bumps. The reduction in rate from 30 year to 15 year period seems not to matter to most people here in the forums, particularly since interest expense is deductible. Also, make sure you're including relevant vacancy, maintenance and capital expense reserves in your cashflow analysis; not just debt service.
You're not building equity when you make the payments shorter. All you're doing is reducing your cash flow (instant profit) and transferring your wealth from a liquid form (cash) to a solid object (reduced balance). It's the same money...just s different form.
When you let your tenant make the payments (rent) and keep more of the cash flow (profit) you are ahead.
Cash/money is a verb and built up equity is a noun. Cash as a verb, in motion, brings in a compounded return. Cash as a noun brings in no return. It's the same value going in as it is when it "dies" in the house.
@Joseph Billow I see most of my investors amortize over 30 years. Let me know if you need any conventional financing recommendation I have worked with what seems like almost 100 different lenders and can definitely point you in the right direction!
Joseph Billow I would use the BP calculator or your own spreadsheet to run the numbers with the different loan amortization options. You can then determine what fits your needs better based on the strategy you want to have. The 30 year note should produce more cash flow each month and you may want more cash in your pocket to save for your next purchase. The 15 year note might yield less cash flow per month but you will pay down principle faster and pay less interest over time. Good luck.
All good thoughts, in regard to the pros/cons of a 30 mortgage versus 15 years, as related to the end-game of producing monthly cash flow from a property, which, as a CPA for thirty years, I understand the finance concepts; however, I completely agree with the way that @Joe Villeneuve explained it, very simply, that "cash" is a verb, i.e., cash now, can be used again, and again, and again.