50% down at 5% interest with a balloon in 3 to 5 years

[David O Smith]

Hi everyone,

I'm currently negotiating a real estate deal and would appreciate some advice on how favorable this offer sounds:

• Price: $3,170,000.00
• 17 units
• 50% down payment
• 5% interest rate
• Balloon payment in 3 to 5 years
• They're open to either interest-only payments or an amortized loan structure

Additionally, I'm trying to secure the best financing option available.

How does this deal compare to the current market? Are there any potential red flags or points I should be cautious about?

Thanks in advance for your insights!

[Benjamin Aaker]

It all depends on your own situation, as you know. Your cash on cash return will not be very high with that much down. The rate looks very nice right now. The balloon payment needs to be nailed down. The 2 year difference between 3 and 5 could have a huge effect. If they will take interest only for the life of the loan, that would be preferable to amortizing as you can likely do better than 5% interest with the principal money you wouldn't be paying. Save that and apply it at the sale or refi when the balloon comes due. Also, is there a prepayment penalty? That's big because you will be looking to refi and pull some of that equity out.