a real estate investor couple sitting down to review paperwork together

Are 15-Year or 30-Year Property Loans Better for Real Estate Investors?

Blog to Go: Tap to Listen Anywhere!

Every type of loan has its own set of benefits and disadvantages. For real estate investors, choosing the right loan with the best terms can impact everything from equity buildup and cash flow to the overall profit margins of the investment property.

Here’s an overview of some of the different types of property loans available to real estate investors and how to choose between a 15-year or 30-year property loan for each investment.

Common property loans for real estate investors

Real estate investments can be complex, and the right kind of financing will vary depending on the property type, your experience as a real estate investor, your business plan, and your ultimate goal for the property.

To secure financing, it’s critical to weigh the benefits of the most common types of loans available to real estate investors:

Traditional real estate loans

Traditional real estate (mortgage) loans are issued by banks and institutional lenders. The application and loan approval process is typically more stringent and factors in the borrower’s personal credit history and assets.

If you need access to short-term financing to acquire a property in a hot market or to bridge a financing gap, there may be better options than a traditional real estate loan in a capital crunch.

Commercial real estate loans

Commercial real estate loans are used for financing income-generating commercial properties, like office buildings, retail spaces, or multifamily apartment complexes.

Commercial loans are usually tailored to the property's income potential and have different qualification criteria than residential loans.

Portfolio real estate loans

Portfolio loans are a little different in that the lender keeps the loan on their own books rather than selling it to a secondary mortgage loan company like Freddie Mac or Sallie Mae (which are government lenders).

This strategy gives lenders more flexibility in terms of their underwriting and approval criteria. It offers financing for unconventional real estate properties and deals that might not qualify for more traditional loans.

Hard money loans

Hard money loans are private, short-term real estate loans ideal for quickly acquiring a new property or bridging a financing gap (bridge loans) until you can secure long-term financing or sell the property.

Hard money loans are secured by the property rather than the investor's personal finances. This means that the approval standards are often less stringent than traditional real estate loans, and the funds can be disbursed in as little as a few days in some cases.

Understanding 15-year property loans

If you can see your property purchase as a long-term investment, a loan with a longer payment term might be the best option.

Here are some of the key advantages and considerations to keep in mind with a 15-year property loan:

Higher monthly payments vs. lower interest rates

Choosing a shorter-term loan (15 vs. 30) means your monthly payments may be significantly higher depending on the loan amount.

That said, investors can save a substantial amount of money on overall interest payments depending on interest rates vs. the size of the monthly payment and how it will affect your cash flow and budget until the loan is repaid in full.

A 15-year property loan is ideally suited for longer-term investors in rental properties with a stable budget to consistently meet the higher loan payment every month.

Build equity faster

The combination of higher monthly payments and lower interest rates allows you to accumulate property equity faster than with a loan with longer repayment terms.

A healthy equity stake in your investment properties can make it easier to secure short-term financing like bridge loans with non-traditional hard money lenders should you need it.

Understanding 30-year property loans

While 30-year loans have lower monthly payments, they also usually come with higher interest rates. If you have a robust portfolio with diverse property holdings, a 30-year mortgage can free up cash flow in the short term with lower payments on a fixed schedule.

Depending on the specific terms of your loan, some lenders may allow you to pay ahead of schedule to lower the principal balance (but be aware of loan contracts that include prepayment penalties.

A 30-year loan allows you to preserve cash flow for other investment opportunities, renovations, or to diversify your real estate portfolio.

Unlike shorter-term loans, a 30-year property loan allows you to spread repayments over an extended period, resulting in lower monthly payments but a longer payoff schedule with more accrued interest.

How to choose between 15-year and 30-year loans

Choosing between a 15-year and 30-year property loan depends on various factors, including your assets and cash flow needs, long-term investment goals, risk tolerance, and overall investment strategy.

Keep in mind that market factors outside of your control may also impact your investment strategy over the lifetime of your loan.

Some of the general factors to consider when deciding between the length of your property loan include:

  • Investment income, cash flow, expenses, debts, and overall financial stability
  • Defining your short- and long-term investment goals in as much detail as possible
  • Determining your risk tolerance, especially during times of economic instability and unpredictable market fluctuations
  • Getting quotes and comparing payments, interest rates, and general terms for both types of loans
  • Factoring in your plans for future renovations, refinancing, or selling the property

It’s always advisable to consult with a real estate loan professional to find the right type of loan for your needs.


Dreaming of scaling your real estate investments?

Kiavi leverages cutting-edge tech and data to fuel your growth with fast, reliable capital.

Related Articles