The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Kriegsspiel on September 10, 2012, 10:31:11 AM
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I don't see any advantage, except for building equity in the house quicker, since the rent will cover less of the mortgage/insurance/property tax payments. Is there something I'm missing? If the going rental rates would cover the entire M/I/PT in a 30 year, but might not in a 15 year, is there any reason to go with a 15 year? I mean, it's not like I would be paying that extra money on top of the house value (the interest). This would be for a duplex.
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Sorry, I forgot to say, this is assuming the mortgage would be the current awesome sub 4% rate. And I would be living there.
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It is all personal preference. The math suggests that you may get a higher ROI by getting the longer loan and it may help you get into another property faster because of the cash flow generated off of the smaller payment. If you want to aggressively buy as much property as you can qualify for, get the longer term loan. If you want to play it more even and keep your interest payments to a minimum, consider the 15 year loan.
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I'm a huge fan of the 30 year fixed for investment properties. Your proposed purchase is 50-50 (and qualifies for owner-occupant financing, very smart of you) and could eventually be 100 percent rented. Should you have a prolonged vacancy or other issue, the mortgage payments are easier to handle without rental income. If you lose your job or go out on disability, you have more flexibility.
However, I also believe in either paying down the mortgage on a 15 year amortization schedule whenever the payments are feasible. Or at least taking the amount of the extra payment and socking it away until you have enough to pay off the mortgage.
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I would think the big (only?) advantage of a 15 year over a 30 year is the lower rate. Fifteen-year rates are typically lower than 30 year, but it's up to you to determine if that is worth the opportunity cost of lower cash flow. I like the 15 year time-frame personally, so that's what we go for, but if the rate was the same I would take the flexibility of the 30 year and just pay it down on a 15 year schedule.
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Absolutely do 30 year instead of 15. You can prepay the 30 year to make it a 15, but if something unfortunate happens you can't reduce the 15 year payment back, you can with the 30.
Read this article from a day or two ago: http://bawldguy.com/real-estate-investment-mortgage-rate-update-plus-how-14-months-is-your-friend/
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Good points all.