A Beginner with Some Seller Financing Questions

[Jacob Zivanovich]

The more I get into this, the more appealing it sounds, but I'm still cloudy on some concepts. This is regarding balloon payments.

So say you and the seller agree to begin this transaction and are discussing the type of financing that will occur. I usually hear of a 5-10 year balloon payment. How does the investor make this happen? How does someone get out of the balloon payment? Wouldn't that total amount be due at the end? I've always heard that balloon payments are risky.

Here's my answer that I think is correct, but please correct me if not: At the time of the balloon payment, the investor goes to a bank and applies for a loan on the remainder of that balloon payment. That way, the investor doesn't necessarily have to pay that amount up front, but can continue to use the revenue from the property to pay the loan.

Not sure if this is the correct thinking. Thanks in advance!