15 year or 30

24 Replies

Question, first deal. For a Single Family Home. What would you suggest, 15 year fixed or a 30 year fixed? Please tell me which one and why and also if you are willing positives or negatives if either. Thank you all so much.

@Jonathan Gregori - 30 year. As you grow your portfolio your DTI will become a bigger deal. With a 30 year mortgage the loan amount is lower so it takes up less of your DTI. You can always pay the amount of a 15 year if you want

@Brie Schmidt  Thank you.  I have heard from time to time people say if you can't do a 15 year you should not be investing.  Not saying I totally agree.  I guess it all depends on what your goal is.

@Jonathan Gregori  

Not only is your monthly payment lower, but if you need some extra cash for another investment, you can save it much faster when you don't HAVE to pay the extra on the principle.  

On a $200k mortgage the difference is more than $500/month at 5% (1073 vs 1581).

That "15 years..." quote may come from the world of commercial real estate.  But as @Brie Schmidt  pointed out, it is pretty much meaningless.

what brie said.

15 year is for amateurs.

@Eddie T.  , @George P.  , @Aaron Montague   , @Brie Schmidt   15 yr. Mortgage only $1,097, 30 yr. $755.  Looks like I can get between $1,400 to $1,450 possibly $1,500.  Taxes are $2,800.  Vacancy rate would be around 5% or 6%.  Built in 2007 a lot of growth in the area very good chance equity will come into play but that is icing on the cake.  In a very good school district as well.,

If you are planning on buying more property in the future, I still say 30 year

get the 30 yr. you cashfllow more, so you can get a second property quicker. then a third. then a forth. it's a simple concept.

good work and look ahead, never behind (except when evaluating mistakes). :)

Originally posted by @Brie Schmidt:

If you are planning on buying more property in the future, I still say 30 year

 you beat me to it!

:)

It depends on your goals.  Do you need/want the cash flow?  Is your goal to have the house paid off?

30 year

If you want the cash flow and plan to add many more properties.

15 year

If you want to have the house paid off in 15 years to reduce leverage and have a higher cash flow. Downside is your ROI is lower than a leveraged/mortgaged house.

The 15 year reference is likely a Dave Ramsey quote... he teaches that debt is bad and only acceptable on a primary residence.  He wants debt paid off as quickly as possible, thus the 15yr preference and advises that if you can't afford a 15yr, then you can't afford the house (primary residence only). Brie's advice (30yr) is in line with the majority of real estate investors and allows you the ability to aquire more property in a shorter time period.  The other side of the spectrum is to pay cash for everything and not finance anything, which is considered foolish by the majority due to the much higher rates of return when you leverage funds ... (use Other People's Money). leverage allows you to control massive amounts of real estate in a relatively short period of time.  I have projected the numbers using both methods and when accounting for appreciation of the assets, the leveraged approach wins... as long as your personal risk tolerance allows you to have large amounts of outstanding debt.  If you decide to go the leverage route, there is no good reason to choose the 15yr option... as @Brie Schmidt   said, you can always pay extra to put it on a 15 year schedule, but the added amount will not count against your debt-to-income ratios when you are ready to aquire additional properties.

cash flow is king.

30 yr.

You want as much cash as possible coming in the door each month for two reasons.

1. Things happens, repairs, vacancy etc. You want cash available to handle these, and not dig into your own pocket so to speak

2. Growth of the business as Brie mentioned, lower payment obligations-more cash flow, equals easier to grow the business, then when you get to the number of homes you want, you can start paying down the mortgages faster if you want.

I have only been in this one year. But thats my opinion

@Eddie T.  , @George P.  , @Gabe G.  , @Jeff W.  , @Brad T.  , @Brie Schmidt  

Hey guys from the info I sent you do you think it would be a good deal?  This would be my first deal.  If you need more info let me know.  I want to make sure it makes sense.  Also another part of the deal is that I have spoke with family members who are just sitting money in the bank not getting any return about lending me the down payment, $34,000 at a 5% to 6% interest only payment with the understanding of me paying them back in 18 months.  It gives me enough time to save up and pay them back but at the same time get the property now.  Let me know what your thoughts are on this deal with those terms.  Again if you need more info let me know.

I know the interest payment would have to be figured into the Debt to Income ratio. As of right now I am a prime candidate for a loan. I have a 18% DTI. The interest only payment would be $170/mo. I have spoken with the banks and they will still loan me even with the money be borrowed for the down payment. Any thoughts on the above two posts would be helpful! Thank you again.

I didn't see the property details anywhere other than the rent and taxes.  Post that and you will get lots of help!  What is the purchase price, type of house, nice area?

Hand down 30 years!!!! Our first one was 15 years and I totally regretted it. As you start to buy houses you are going to have a hard enough time getting them to qualify you on the debt to equity for 30 years. So you definitely don't want to do 15. If you just want to buy one or two than maybe.

The other issue is the higher monthly payments are going to show more of a loss. That's great except the mortgages are going to have more to hold against you.

I would find out exactly how much the following expense are going to cost you each month. "The tenant pays" is a good answer as well. Put those numbers up here and I'll tell you what I would pay for the place.

Taxes

Sewer and Water

Trash

Heat/Utilities

HOA

Cap Ex and Ops (my personal minimum is $150/roof/month)

Insurance

Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)

Vacancy- as a %. (8% represents 1 vacant month/unit/year)

It really depends on your personal goals..but 30yr better .Since we don't know where the rates are going, lock in at a good rate and continue to grow..You can always add 2 extra payments a year to make it a 15.....

Can't paint every deal with the same brush...that being said the typical strategy is lower payments = more cash flow.  If you are trying to get cash flow then the least amount of money out of your pocket without over leveraging yourself the better.

What does rentometer.com say you get for it ? 

one last post, 30 years on loan terms for cash flow and DTI terms later. Now @Jonathan Gregori   you have not showed us your property.  How did You do?  We are cheering for you. 

Hey guys, sorry it has taken me this long to respond.  I am not ignoring any of you.  Just now getting a chance to hop back on BP.  I will try and have all the numbers and details up on this blog post within the next 24 hours.   Again thank you for all of your input.

Do the 30 year and lock up the low interest rates for as long as you can. I you ever want to you can make additional payments to pay the loan off quicker.

For a first time investor or a relatively new investor, I'd recommend a 30 year fixed rate mortgage.  The interest rate is slightly higher than a 15 year mortgage, but the payment will be about 20% lower due to the longer amortization.

If somewhere down the line you have extra money, you can always make extra principle payments to accelerate the payoff date.

Later in your investment career, I'd recommend the 15 year fixed rate mortgage.

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