Dressing up as a balloon payment for Halloween

[Jim D.]

I have built the majority of my small portfolio by house hacking for the last five years, and one result of that is that I am now spooked by anything other than the low interest, 30-year fixed rate terms I've grown accustomed to. My average rate is below 4% fixed, and I feel like I should be able to ride right through a recession.

I'm getting to the point where I want to start looking at 5+ unit properties, but am having a hard time stomaching the commercial loan terms. The variable interest rates bother me, but the balloon payments sound like a recipe for disaster. I've met people who owned small apartment buildings with commercial loans, had never missed a payment, and were still in the black on a monthly basis, but had the misfortune of having their balloon payments come due in 2009 and were left standing hat in hand (lost their properties even though they had never missed a payment!).

For those of you who frequently use these loans, how do you mitigate the risk of needing to refinance in 5-7 years, but not having any idea what interest rates or credit availability will be like at that time?