Before I mail this ... - Posted by Bert G

Posted by Irwin on May 15, 1999 at 06:38:01:

Tell me about it. About a month ago (right about tax time) I got a call from a banker we used to deal with, asking me what I was going to do about a note that was due last Feb. I completely forgot that a 15 year mortgage I had with him on a property had a 3 year balloon. We’ve always paid it on time, so we just extended it another 18 months until the property gets sold.

Before I mail this … - Posted by Bert G

Posted by Bert G on May 14, 1999 at 21:14:45:

I’ve typed up a letter of intent to the realtor to pass on to the listing agent to pass on to the seller. (oh boy, roadblocks). Just wanted to run this by ya’ll to see if I’m doing the right thing.

The property is a very nice 3-story 6-plex of one-bedroom units. The rents range from $300 to $400 each, all on identical apartments, so it shouldn’t be hard to give the lower-priced ones a healthy bump to bring them up to local market levels. I’m projecting a NOI of $14,500, based on the current rents. Yes, I included a reserve for repairs and a cut for my own time. After taking out another 15% for profit, it leaves $850 a month for debt service. (P&I)

The owner is anxious to unload this. He’s halfway accross the country and has his “party-girl” 21 yr old daughter mis-managing the place. It really doesn’t need much work at all, but the tenants are all complainig about the lack of maintenance. Anyhoo, the seller started out asking $165 K a bit over a year ago. By March he’d dropped his listing price to $152,900

I’m offering $130K, $20K down and the rest seller carryback or contract for deed at 9% 30yr P&I, with a 5 yr balloon. I figure this will give me enough time to establish a track record for the property and get other financing. Also, this will throw off enough cash flow to get my down payment back in about 5.5 years. After all the dust settles, the seller will have received (P&I + balloon) just under $160K.

I used a form from the local realtor and after figuring tax and equity buildup it yeilds about 33% ROI. Yea, I know equity doesn’t mean much for you flippers, but I actually enjoy being a landlord and plan to hold the thing for at least 10 years.

So whaddya think???


Re: Before I mail this … - Posted by Bud Branstetter

Posted by Bud Branstetter on May 15, 1999 at 04:43:16:

Would you be embarrassed to offer 110K with 10K down? You may need that other 10K for repairs and maintenance. You can also try multiple offers. You need to find out what he needs. Cash, cash flow or just the problem out of his life. An offer of lease/option with generous rent credit to you could give him cash flow, give you a better price and solve the management problems.

As far as the balloon-Tony Hoffman once wrote that you should never do a balloon in under 7 years. In that time, historically, either inflation adds value or interest rates fall. If I have to concede a balloon I also try to negotiate a tempory out-higher interest or additional payment.

Balloons are for clowns… - Posted by Daniel Lubell

Posted by Daniel Lubell on May 14, 1999 at 22:48:23:


I would try and get away from the balloon. Especially because this is your opening shot, I would simply not offer a balloon. Balloons have a nasty way of coming due at the worst times.

I have a lot of balloons myself, but I am trying to refinance them while I can and I only take them when I have to do so.

Anyway, if you end up having to offer the balloon anyway, you are no worse off. In any event, you might end up with a balloon farther out down the road.

Balloons are for clowns.

Daniel Lubell