15-in-30 loan with balloon payment?

[Michael Sorensen]

Hi All,

I have what could be my first multi-family property under contract (a fourplex that cash flows decently well) and found a loan that offers 15% down for an investment-only (non-owner-occupied) property. The rate is good (4.5%) but it's a "30-in-15" with a balloon payment of about $300,000 at the end of the 15 years. Still being relatively new to all this, and being pretty risk-averse, that balloon payment makes me nervous.

I've read all about balloon payments and understand the general risks/benefits. I hear they're common in commercial real estate? Since the property cash flows well, my perfect-world-scenario would be to have a nice stable 30-year fixed so I could just hold and weather a downturn and only sell if it made sense, but I don't have 25% to put up for a down payment and don't want to owner-occupy.

So my question is this: how crazy would I be to go with this loan? In 15 years, I've got to think it will appraise for at least $300,000 should I be forced to sell (buying for $535k right now; 15 years ago it sold for $215k), but if the market softens or crashes, could it go lower?

The property is in West Valley, UT. UT is booming with no end in sight, but I also know there is rarely an "end" in sight until it comes...

Thank you in advance.

[David Miller]

If this is underwritten as a commercial loan, I would generally jump at the chance to lock in a 15 year term at 4.5% with a 30 yr amortization.  If it is underwritten as a residential loan, you might typically expect a fully amortized 30 year term.  Given it is four units, it may be underwritten as resi loan.  That said, in general locking up cheap debt at a fixed rate for 15 years on a multi-family investment property is low risk.