Alternative Financing Question for 1031 exhange

[Erick Garske]

I am nearing the end of an escrow for one property, and am busily vetting deals for replacement properties to satisfy the requirements of a 1031 exchange.

The advice that I need is on evaluating the two types of financing.

Conventional - Typically LTV of 75% with a 4.5% rate limited to ten properties at 30 years

Pros

Low interest rate, No PMI, no points.

Cons

Extremely time consuming, much documentation, costly to cover closing cost.

Unconventional LTV of 50% to 60% with a rate of 10% not limited to ten properties interest only five years with a ballon payment. The intent is to either sell or refinance the properties prior to the end of the balloon payment. Cost of five points but is negotiable.

Pros

Can close in a week, only an appraisal is needed, avoids the time and energy of originating a loan. It is easier to refinance than an existing loan then to originate a new one. Closing cost is limited to docs and escrow.

Cons

High interest rate, high points.

Thanks in advance or your insights on these financing options.