Balloon - why all the fuss? - Posted by Mr Donald


#1

Posted by Mike Jennings on December 19, 1998 at 17:22:24:

If someone is unable to pay the balloon, what options are available, short of foreclosure? Other than restructuring the note with the holder, what options does the burrower have? Thanks.


#2

Balloon - why all the fuss? - Posted by Mr Donald

Posted by Mr Donald on November 13, 1998 at 18:48:47:

Why all the fuss about balloon notes? So you have a large amount due at the end of the term? Big deal. If you’re responsible enough to meet your obligations you’ll simply refinance it when the loan is due. Period.

Curious side note. Up North, in Canada, they’ve been doing it this way for years. The notes are amortized over 25 years, with a 5 year term. Why? It has something to do with the Interest Act of Canada, or some such antidiluvian law that makes it in the lenders benefit to have a term of 5 years or less on notes.

Since they’ve been doing this for at least a generation or two, with no noticeable increase in the mortality rate as a result, it can’t be all that bad, now can it?

As a notebuyer or holder, what’s the risk here, anyway?


#3

Re: Balloon - why all the fuss? - Posted by Mark Vidales

Posted by Mark Vidales on November 15, 1998 at 19:49:40:

John is right most investors use ballons without too much thought of the future. I know cuz I just lost a house for the very same reason. I had this property for five years and the equity was just not there. I tried renegotiating with the second holder but she just wouldn’t hear it.

This property was eating me up $300.00 a month!! I just didn’t want to not pay but I definitely would have
done a number of things to keep it going. Most investors I talked too said walk away!. I wasn’t raise that way, so anyway I qwould never do a baloon again. In fact I’m gonna start using Principal only loans in my offers none of this interest only hogwash!!


#4

I LOVE balloons - Posted by John Behle

Posted by John Behle on November 15, 1998 at 15:51:14:

Balloons aren’t that big a deal - unless someone doesn’t plan for them. It’s just a matter of there are better and safer alternatives. As a notebuyer balloons can be extremely profitable as I mentioned in the article posted below titled “BALLOONS ARE FOR CLOWNS”.

  1. MINIMIZING RISK. I believe in doing all I can to minimize risk. It’s just my strategy. If there is only 2% risk of something, I’ll reduce it to 1% if it is possible and simple to do. With balloons, there is the risk that the payor can not pay at the time the balloon comes due. If your strategy is to get the property if possible, then no problem. If you’d rather not, then a balloon can be a problem. Of course, if you invested in a note or sold a property without the assurance that you’d be safe and protected if the balloon “failed”, then you shouldn’t have done the deal. Never invest in a note if you wouldn’t want to own the property.

Sometimes that is a personal decision based on individual circumstances and preferences. You or I might not have a problem in not receiving or in paying a balloon, but the average “AMERICAN” investor may not be set up that way. As you probably know, many investors commit to balloon payments with little thought of the future. I have seen them explode on them and cause great problems for both the payor and the beneficiary. The worst of course is if they are stuck in the middle and do not receive a balloon that they need to pass on to someone else.

  1. MAXIMIZING PROFIT. Restructuring balloons can boost your yield on paper dramatically. See the post mentioned below. As a paper investor, I love to buy notes with balloons because of the potential profit in restructuring them. It is an incredible win/win scenario that also boosts my profit.

As an investor, agent, or seller, it can really avoid problems to avoid balloons. Why not reduce risk if you can?

Where are you from in Canada? I spent a couple years in Alberta a while back (long after the “draft” - not as an avoidance). I consider it my second home. I’m looking to take my family up for the “Stampede” this next summer.


#5

Re: Balloon - why all the fuss? - Posted by Soapymac

Posted by Soapymac on November 14, 1998 at 21:10:23:

“As a notebuyer or holder, what’s the risk here, anyway?”

You mean besides being in a second or third position when the first goes into foreclosure and you didn’t know about it so you just lost your shirt?

Nothing, really. The Real Estate Sales Trainer Tom Hopkins calls a balloon note the “delayed initial deposit.” I like that. It describes the use of balloon notes rather well, wouldn’t you agree?

Cordially,

Soapymac