Commercial loan advice and two cents

[John Rutherford]

Hello BP! I have found a 14 unit place (4 tris and 1 du on the same property) in my local area at a good price and with good rents. I haven't ventured out into a commercial loan yet but I am considering it. I have the money for a down payment and easily enough for 6 months of mortgage payments after. I am concerned about the balloon payment and/or refinancing. I have a bank whom I have worked with in the past and they have offered 80% LTV at 5.01% amortized over 25 years with a 7 year balloon payment. I am agreeable to the terms just concerned with the ever looming balloon payment/refinance/sell. What are your thoughts? Thank you!

[Andrew Johnson]

@John Rutherford I'm in the full-recourse boat.  Now there's an ulcer waiting to happen 😬  But the reason why I made sure there was no prepayment penalty is that if I have extra cash I can paydown the note in advance.  And I do get a return on that prepayment in the form of tiny future additions to principal vs. interest payment.  You can look at it on a amortization table.  So I can get a risk-free 4.57% return (in my particular case) on that money.  Now that return isn't "cash flow" it's just paying less interest.  That's said, it's the opposite of 99.9% of advice you'd see here on BP.  The *better* idea is always to buy the next property.  Then again that's advice doesn't always come from someone with a full-recourses loan and a balloon payment coming up!