Will It Fly In The Beautiful Balloon?
One thing that has me curious is the quantity of references I see to "Balloon" payments at the end of 3 years or 5 years. I understand the concept of a balloon payment, but I have a bit of difficulty understanding how they fit into the income property business concept.
Is it sensible for an investor, particularly one that is just starting out, to opt for a balloon payment on a property that he or she intends on holding onto for a while? Doesn't this leave you vulnerable to a unfavorable refinance, or in the worst case, a forced sale before you've brought the units up to resale standards?
Just asking,
Jude
The ideology is that the property will be worth more within the 3-5 year time frame and if they are saving during that time they will be in a better position with a better property to refinance. Also during that time the rents should be going up as well making more of a cash flow.
This doesnt always happen but that should be the plan. Also I am sure if they could get a better loan they would. For whatever reason they will tend to opt for the loan, either more cash every month or unfavorable credit score etc etc.
Kyle