I own one short term rental property. I put down 10% and mortgaged the rest over 15 years at 2.875%. If I went with a longer term, like 30 years, that would lower my payment, thus making my property cash flow positive. Right now it hovers around breakeven.
So my question is, is it better to put down less and use a 30 year term? This will create a much higher overall cost to purchase with 30 years of interest, but it will provide monthly cash flow that I could use toward a 2nd short term rental property. What is the best way to leverage my money? Will it mathematically be better to own multiple properties with 30 years terms and pay much more interest or shorter terms with less properties? Are there any calculators out there to plug in these factors and see an actual spreadsheet of projected ROI? Thank you.
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
6y
@Michael Gough. Has nothing to do with it being a short term rental -but it depends what you want out of life. My guess is you financed it as a Ramsey and now you’re trying to become a kiyosaki. Life is better over here. Come on in.
I always say there is value in options. I would use the 30-year loan with lower payments. If you are profitable and would like to make extra payments at any time to reduce interest and loan term, you have the option to do so. If you are not profitable, you can default to the lower payment and not be stuck with a stressful higher payment.
Another way to save money on your monthly payment is to put 20% down so you don't have to pay PMI which can save you thousands over the life of the loan.
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
6y
@Michael Gough. Has nothing to do with it being a short term rental -but it depends what you want out of life. My guess is you financed it as a Ramsey and now you’re trying to become a kiyosaki. Life is better over here. Come on in.
Rental Property Investor · North Fork, NY · Member since 2016 · 1k+ posts · 631 votes
6y
@Michael Gough With your stated goal of wealth accumulation, paying less in overall interest aligns with that, and your rate is amazing. Get rid of the PMI as fast as you can. Depending on your market and how long you've owned it, you might be able to do that now and begin saving that money. Not knowing where your STR is, I'll add that we bought a STR in the Smokies two years ago with a 4.12 interest rate for 15 years, 20% down. And we cash flow really well, grossing $6K this month easily. By reinvesting in it, we're forcing equity and increasing our nightly rate at the same time. We Self manage from out of state because it works.