Question about balloon financing

[Stanci March]

I'm looking at a 100% leveraged deal on a 6-plex in a college town. This property should cash flow even (or very close to it)  with $0 down and should be an excellent appreciation play. 

I'm putting 10% down through a cash out refi on another SFH I own outright, with some remainder coming from a second loan on my primary residence. Seller is carrying back the rest at 5.75% (seems a bit high but no origination fees) on a 1 yr arm (he has one year left on his arm with the bank)...at which point the rate would fluctuate based on his bank loan. This loan will be on a 25 yr amortization schedule with a 5 year balloon.

I'm a bit nervous about the balloon because if the property doesn't appreciate I'll only have ~7% in equity and will need to come up with a significant sum to refinance with a bank. Am I looking at this correctly or will a bank consider the 10% downpayment I have included in the deal as equity? The down payment amount will not be secured the apartment building but by my personal home as well as my SFH rental.

[Christopher Phillips]

@Stanci March

Lot of red flags here...

One, when discussing commercial properties, you should be talking about rent rolls, current occupancy, NOI, Cap rates, etc..

You're telling us $0 down, then you tell us you're putting down 10% pulled from one house and more from another. You're giving us fuzzy math. What exactly are your numbers?

we haven't seen any of your % assumes, but buying a property that just breaks even each month is bad news. You've got 6 units where something will need fixing each year.

Yes. The balloon payment will force you to refinance in 5 years. Commercial loans would probably be in the 65% – 85% LTV range. That means you'll have to cough up the difference if the market runs flat over the next 5 years.