Why would an investor choose this financing?

[Chris Clothier]

I'm looking for feedback from other active investors who want to use leverage to buy real estate, but do not qualify for conventional financing. Recently, I have been bombarded with opportunities to buy properties with private financing in place. I would never purchase under these particular parameters and want opinions of other investors who may think I am missing the good points to a deal like this. Here are the details:

Multiple properties available priced between $50k and $75k. (most are below today's market value by 10-15%.)

- 50% down payment
- 7% INTEREST ONLY
- 5 year balloon payment
- 3% loan fee plus closing costs
- taxes & insurance are not escrowed

Rent ratios run 1.2% - 1.4%

I am not a fan of the 7% interest only portion of the deal and at these costs, I believe I could actually purchase the property outright, earn the return over 5 years and be in a position to purchase another with cash. Does it make sense to put 50% down on a property and borrower at interest only with a 5 year balloon?