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There are many benefits to buying an investment property, not only can you get monthly rental income from tenants, but you can also hold that property and wait until the value increases and sell it for a profit. However, not every real estate investor is ready to buy a rental property outright, which is where loans come in. In this blog, were going to be talking about two kinds of long term rental loans and how they differ to help you decide which option is right for you.
15 Year Long Term Rental Loan Loan
A 15-year loan is a popular choice for real estate investors, and the primary benefit of this loan is that the lower interest rate combined with the shorter repayment period can save you money on interest. However, these two factors mean that the monthly payments under the 15-year option will be higher as opposed to a 30-year loan. A 15-year loan might be a good option if you choose to rent the property out because if you are bringing in enough rental income, you can cover the difference of the monthly loan payment. This can ultimately save you money on interest, which you can then invest elsewhere.
30 Year Long Term Rental Loan
Alternatively, to the 15-year loan, a 30-year loan means lower monthly payments, but ultimately more interest due to the length of the loan. With this in mind, there are still plenty of benefits to the 30-year loan, and many investors lean toward the lower monthly payments for a few reasons. One, lower monthly payments leave room for more near-term cash, which can be useful if you’re looking to buy multiple investment properties. Another benefit is that it may be easier to qualify for other loans should you decide to invest in more properties. A major qualifying factor in getting approved for loans is your debt-to-income ratio, and the higher your ratio, the lower your chances are of qualifying.
Which Option is Right for You?
The choice is really situational, but a good place to start is by determining your goals as a real estate investor. Do you plan on buying and financing additional properties in the near term? In that case, a 30-year mortgage can make more sense, as your monthly debt payments may be higher with a 15-year loan, making it harder for you to qualify.
Another factor is savings. Many people have a hard time saving money, and if you don’t have an emergency fund, a 15-year loan may be a bit risky. For example, if something comes up such a medical emergency, it’s going to be much harder to contribute to your higher monthly payment with no savings compared to the lower payment of a 30-year loan.
Final Thoughts
On the surface level, a 15-year loan may seem like a great option due to the lower interest and shorter term. However, if you plan on investing in more properties, you may have a harder time applying for another loan with your money tied up in those bigger monthly payments. But if you’re not concerned about your debt-to-income ratio, a shorter loan could save you quite a bit of money in the long run.
Long-Term Rental Loans at RCN Capital
Buying real estate is a great investment strategy, and here at RCN, we want to help you make the best investment choices. We offer short- and long-term financing options for real estate investors. Whether you’re looking to fix and flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs.