New to Real Estate · Jacksonville Florida · Member since 2022 · 14 posts · 2 votes
I have a potential deal in which a seller is selling three duplexes and is offering to "hold a note" for 20% down of the agreed upon purchase price, on a 5 year balloon at 10% interest.
First, I think "hold a note" means that this is a seller financed deal, right? Or maybe they're just agreeing to finance the 20% down? Can someone clarify what this means.
I've looked up that a 5 year balloon means the entirety of the loan will be due after that 5 year period is up. So the mortgage looks like a normal loan for 5 years then "balloons" to the remainder balance becoming due once that period is over. Is that right?
Assuming the properties are in good condition, in a desirable location, and cashflow well, how good a deal is this to start out my portfolio?
Any help is greatly appreciated. Feel free to dumb it down for me, too. I'm new here.
Meaning you can control him, but also meaning he might bite you if you don't know what you are doing.
You will need an 80% loan that is ok with a seller holding the 20% down as a note.
Before the five years is up you will need to have that 20% in cash to give to the seller, either from the rents saved up, or from a raise in building value that lets you refi the original mortgage for 80% of it's then value.
Look at the seller like a loan shark--he is giving you 20% of the cash needed to buy the places, and you are either going to pay him that 5% back + 10% interest in one lump sum in 10 years, or make monthly interest payments of 10% for 5 years and then pay him the 20%.
Fail to make the payment(s) to him and he will foreclose on you and take the properties back in his name.
You need to understand is the balloon all due (20% cash + interest) in one payment in the future or is it interest payments for 5 years then the 20% in cash is due.
You also need to have a plan of how to pay that 20% + interest off when it is due, and still be able to run the apartment business.
@ST King you need to clarify with them if they are financing the deal and you pay them 20% down, or if you are financing the deal but they are willing to loan you the 20% down payment that the bank is requiring. It would be two very different things.
Also, in the case that it is the first option, you might as well run the numbers with a local bank and see what it looks like on a 30 year mortgage vs the 5 year balloon. You paying 20% to a seller to finance a property negates one of the biggest potential benefits of seller financing.
I have a potential deal in which a seller is selling three duplexes and is offering to "hold a note" for 20% down of the agreed upon purchase price, on a 5 year balloon at 10% interest.
First, I think "hold a note" means that this is a seller financed deal, right? Or maybe they're just agreeing to finance the 20% down? Can someone clarify what this means.
I've looked up that a 5 year balloon means the entirety of the loan will be due after that 5 year period is up. So the mortgage looks like a normal loan for 5 years then "balloons" to the remainder balance becoming due once that period is over. Is that right?
Assuming the properties are in good condition, in a desirable location, and cashflow well, how good a deal is this to start out my portfolio?
Any help is greatly appreciated. Feel free to dumb it down for me, too. I'm new here.
Thanks!
Really appreciate both of you for helping me understand more about this offer. I spoke with a broker yesterday who advised me very similarly to your input, Mac. Brokers additional comments were on how he's seen tons of other sellers nearly "foaming at the mouth" to offer deals like these and how hard it can be to see these sorts of deals through for the buyer.
I think I'll walk way from this one for now but I'll keep my eyes peeled for more favorable opportunities. Can't thank both of you enough for your input on this.