Seller financing with interest-only payments

[Tarik N.]

Hello,

I am pondering my first seller-financed deal on a duplex. The seller will sell it to me fully leased at 5% amortized over 30 years with balloon payment after 7 years, interest only.

I'm pretty happy OK with the terms in general except the "interest only" portion. I will be paying less than for a traditional monthly payment with regular paydown, but at the end of the 7 years, I still won't have paid a single dollar of the principal, and that bothers me.

Is "interest only" the typical way to do seller financing deals?

It seems that the only positive outcome for me in this deal is that the property increases in value sufficiently in 7 years for me to refinance and start on a regular mortgage. The only other option would be to save money for the 7 years and make a down payment then.

I would appreciate any thoughts/input.

Thank you,

Tarik Nabi

[Thomas S.]

Interest only on a investment property is ideal. Best possible situation. Paying down a mortgage is simply turning cash into dead equity. No value in that if you can take the cash and put it to work.