Purchase nothing down, balloon payment

[Craig Anderson]

Hi there, I need some help structuring a deal and figuring out my COC. There's a property that I'm negotiating with the owner on seller financing. Here's the deal presented at the moment:

$600K purchase price, Nothing down, 4% Interest, $2800 monthly payment, 5-year balloon. How do I calculate my COC and Cash Flow with the balloon payment in place? Do I just run it like a 30 year loan on these BP calculators?

Any advice would be appreciated.  Thanks!

[Marco Bario]

@Craig Anderson -

I'm going to give you a very somber warning about balloons. 

Just this week, two property buyers contacted me. Both purchased properties using selling financing. Both have balloon payments coming due. Both experienced loss of income during the pandemic and their credit scores are low. Neither will be able to refinance to pay off the balloon. 

When they closed on their properties of course they couldn't have seen trouble ahead. But life happens. People get sick, income streams come and go, income properties sometimes don't perform as expected, economies rise and fall, interest rates rise and fall, lending tightens and loosens, natural disasters happen... etc... etc...

My point is to do what you can to avoid or lessen the impact of the balloon. If the seller won't let it go, perhaps you could negotiate an option to extend.