Balloon Payments - Posted by Rick(CA)

Real Estate Investing
#1

Posted by dewCO on December 01, 2000 at 10:42:01:

Rick, you make your deal “going in”. Meaning you need a good deal when you buy so that when it’t time to get out, you have a way out that preferably allows you to make money.

You can pay off the balloon at the due date, or before (if there is no prepayment penalty). You pay it off by cash out of pocket (yours or a partner’s) or by selling at a higher price than what is owed and keeping your profit, or by refinancing the property. Or for that matter, extending the term of the due date on the balloon.

#1-depends on when YOU pay it off. What are YOU trying to accomlish. Read the guys success story down below a few posts. He’g got a 1 year note, but he’s going to sell that house as soon as he does some repairs and then pay off the note. Maybe a month or several. He made his deal going in by finding a MOTIVATED seller and buying for way less than market value. He doesn’t need to wait for appreciation or anything else to make this deal better. (But YOU could wait if you wanted to.)

#2 There is no gamble in if you make your deal going in. If you buy at market value and you are depending solely on appreciation to get you out with profit, then yes it is a gamble. Hope this helps.

#2

Balloon Payments - Posted by Rick(CA)

Posted by Rick(CA) on November 30, 2000 at 02:20:20:

I see a lot of creative financing techniques on here including creating a note to a seller that generally offers something like a amortized 30 yr note that is due in anywhere from 1-5 years.

I’m not sure I understand fully the implications of this. From what I understand the process to be, your goal is to find a buyer for the house, get your asking price that will cover your purchase price, plus make a profit. But, I have two questions:

  1. Do you pay off the note immediately, or make the payments for the note until due? (I know it can depend on the interest rate, but what do YOU do?)

  2. Isn’t this a gamble that by the notes due date, you will have enough liquid assets to actually pay the note off?

I can see how a full time investor would have no problem with number 2, but a part time investor like many I see on the board, may be taking a bigger risk if they don’t do enough business fast enough. Is this an inherent risk or is this more a highly MOTIVATING factor to keep you from slacking?

I think I’m getting a better understanding of how this works, but I’d really like to get your input about this.

Thanks in advance for your advice.