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Updated almost 6 years ago,
Question on Interest only loans..
Hey everyone!
So for those of you who’ve followed my previous post on getting my first rental property via seller finance, I wanted to follow up and get some insight on some of the terms we’ve agreed upon and accepted (In escrow now) the terms are as follows.
Purchase price $44k
Down $500
Note $43,500 financed at 8.5%
9 year interest only payments $308.13
balloon payment of principal at the end of year 9 (refinance)
Rent $650-$680
Property Management: 10% - $65/mo
Insurance: $43.75
Taxes: $340.20/yr = $28.35/mo
Vacancy Rate: 8.8% - $57.20/mo
Capex aka Repairs: 5% - $32.50/mo
Netting between: $115.07 and $215ish (not the best but something)
My question is, with the terms agreed upon, I realized that because I’m paying interest only (Cashflow purposes) for 9 years and having to pay the full principal amount in 9 years, Does this mean I’m depending on the market appreciating? What happens if the market barely appreciates and I’m at year 9? What if it’s gone up only $5k, does this mean I have to come up with $38,500 somehow? Can I still refinance? Or are there other ways to pay the principal off?
I was hoping to save the cashflow to get more properties...
When the seller and I were going back and fourth I was totally going for more of the cashflow and acquiring the property with low to no money down during our negotiation...
I also was thinking if I just snow balled and used the cashflow to get more properties that are also cash flowing I can easily just have the balloon payment 9 years from now..
Thanks for your help guys!