Aside from interest and rental rates, perhaps the next question you need to ask yourself as a home investor in Dallas Fort Worth is, “what are the ideal mortgage terms” or “how many years you want your mortgage to be”? The answer to that really depends on your goals as an investor as well as your financial situation.
With the market today, your only real choices on an investment property are fixed rate loans with 15, 20 or 30 year terms (you COULD technically do an ARM, but the rates are about the same as a fixed rate loan). What you have to ask yourself is, am I in this for the short term (do I just want to cash flow the property monthly and flip it in a few years) or am I going to keep this property for the rest of my natural life (and pay it off and keep it). The answer to those questions, along with your financial position, can help you determine the best term for you.
As an investor, chances are you are going to be putting money into the property to fix it up. If you are short term, you probably need a lower payment to keep your cash free so that you can make the improvements. In this case, the 30 year term is most likely a better bet for you. This would allow you to possibly be in a positive cash flow position every month, have lower monthly payments, and let someone else pay all of your mortgage payment. The disadvantage to a 30 year is that you do not pay your principal balance down as fast, but you are banking on buying the house right, making solid improvements, and a good Realtor to market the house for lease and sale to make your money.
If you are in this for the long term, a 30 year will also work for you, but again the house will not be paid off as quick. On a shorter term loan (15 or 20 year) you will have higher payments but the principal will obviously be paid quicker. If you have a house with a large margin between rental rates and your mortgage payment (meaning you buy something well under market) then you could still have cash flow. In these situations, however, most people are not trying to have positive cash flow- they accept that the tenant is paying for a large part of their monthly payment but the real payoff will come when the house is paid off and the free and clear cash flow is much greater.
The disadvantage to this is obviously the higher payment but if you have the ability to handle the payments then I feel like this is the best way to buy a house if you plan on keeping it.
If you have any questions about YOUR situation and what fits YOU best, don’t hesitate to contact me.
Craig Pollard is a mortgage professional and owner of Texas Mortgage Team. He specializes in the Dallas Fort Worth area and is a frequent voice on Texas Home Central’s blog. Craig can be reached at 972-317-9900 or emailed by clicking here.
This entry was posted on Wednesday, March 19th, 2008 at 1:16 pm and is filed under Investor, Money Matters, Mortgage. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.