How long should it take to pay off the mortgage

Question

Hello, I’m new to the real estate game, And to BiggerPockets.

When I read about how others bought their property, some took out a mortgage on the house or apartment. And after paying off the mortgage the money really started to roll in. I was wondering how long should you take out a mortgage for ( 15yr, 20yr or 5 yr ).

Joe Villeneuve · Answer

...and, the linger the mortgage, based on the smallest down payment, means the property costs you less.

Kenneth Garrett · Answer

@Tj Augustin

If the goal is to structure the loans for maximum cash flow then a 30 year mortgage or greater is the way you want to go.

Theresa Harris · Answer

You have to look at the big picture.  If you have no mortgage, you are cash flowing more on the property, but you have more money tied up in the property meaning it isn't available to buy more properties.  If you have a mortgage, you are borrowing the bank's money (for a small fee-ie interest) and can do more with that money.

Totally made up numbers...you have $50K and buy one house in cash, rent it for $500 a month or you borrow $200K from the bank and add that to your $50K, now you can buy 5 houses and rental income is $2500 a month.  You still have to pay the mortgage out of that which decreases your cash flow, but now if one rental is vacant, the other 4 are still earning money.  Plus the money you are paying to the mortgage is building equity.

As for how long the mortgage should be, do the max the bank will let you.  You can pay it down faster if you want, but by stretching it out, you payments are lower.  Yes over the course of the loan you will pay more in interest, but your net income each month from the rent will be higher because of the lower mortgage payments.

Tj Augustin · Answer

@Kenneth Garrett

I’m trying to get the maximum amount of money from my properties.

Kenneth Garrett · Answer

@Tj Augustin

It depends on your goal.  If your goal is to pay it off ASAP then 15 years or less makes sense.  It still needs to cash flow.  Are you trying to live off the income?   Remember there are many advantages to having a mortgage; leverage, tenants paying your mortgage and you get to take advantage of the tax deduction.  Is it better to have 3 properties that cash flow $1000 total or one paid off property that cash flows $1000.  Check with your CPA.  Most likely the three properties from a tax perspective will net you more than one paid off property.

Joe Villeneuve · Answer

30 years..or longer if you could.  The longer the better.  Your cash flow is better from the start and keep in mind you are not the one paying the mortgage...our tenant is, from their rent money.

How long should it take to pay off the mortgage

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