I’m 28 years old, renting an apartment in San Francisco, but I’m in the process of purchasing an investment property in Sonoma County. I’m trying to determine whether I want to lock in a 15-yr. or a 30-yr. fixed mortgage. My initial plan was to go with the 15-yr. since my interest rate would only be about 4.3%. My monthly mortgage payments would be approximately $2,300 and I could probably rent the property for $1,800/mo. My boyfriend pointed out, however, that with a 30-yr. loan at 5%, my monthly mortgage payments would only be about $1,700, so I’d be $100 cash-flow positive each month. I know being “cash-flow positive” is something you always hear as being the smart investment choice, but I’m not sure how to factor in the fact that the difference in total interest paid on a 15-yr. versus a 30-yr. is about $130K.
Ideally, I’d want to acquire several investment properties over the next 10-20 years so that when I retire, I could support myself with rental income. Would you say that paying the extra $130K in interest for a 30-yr. mortgage term is worth while since I would be cash-flow positive and could use the cash that I’d otherwise apply towards a mortgage payment (for a 15-yr. mortgage) to save for another investment property? I know there must be some sort of finance formula out there, but I’m not quite sure where to begin. Any thoughts would be appreciated!