Posted by Tony-VA on March 13, 2002 at 07:11:13:
It is not unusual for a Lender to ask for a Balloon in this type of deal. Interest rates are down right now and they want the flexibility of refinancing if rates are higher down the road.
Balloons are something I had previously steared clear of. But certain deals reside far enough within my comfort level to make the balloon a moot point.
For example, if properties with mobile homes appraise for quite a bit higher than the $24,000 and I felt that I had solid numbers on what the cost would be to add the land improvements you mentioned, then I would take a good look at what that lender is offering.
For example, if I can get the Land and improvements (water, sewer, electric) for $30,000 or less (I am just picking a number as I have no idea what your cost would be), I would look for a free or very cheap mobile home (or hopefully more if we can work out the improvements). I would get the home(s) set up on the land and do some rehab. Then I would go back to the Lender, get a new appraisal and refinance for whatever percentage of appraisal the lender will provide (80% in this area). Chances are you will walk away from the refinance with quite a bit of cash in hand to go and do other deals.
A relationship like this might set the tone for you to go after a line of credit with this or other lenders.
Or give them a bit more confidence. Let’s say you pull $10,000 cash out of the refinance. Leave that money in the bank and take a secured line of credit against that account. Work with it for a time and prove yourself. Then go back to the bank with your track record and negotiate for a unsecured line of credit. They may ask for a business plan but by this time you will have a proven record and a solid business to document and prepare the plan.
Keep in mind, smaller (local) banks may be your best source.
Guys like ScottS(NC) are masters at these deals. Keep an eye on his posts as I do and you will see just how it can all come together.