In that case it will be very hard to refinance the mortgage and pay off the balloon payment.A couple of ways to mitigate the risk are:1) negotiate with the bank that after the 7 years the interest floats to market rates (e.g. prime + X%)The only reason smaller banks do these short term loans is because they fear of locking funds while interest rates go up and they could potentially male more money.

Your PM should know the law and should be advising you, by the way.Your tenants are on the hook for the remainder of the lease, but because you have a duty to mitigate, you can't just sit back and let the property remain vacant.  

Account Closed There are three major things that a note investor needs to account for which can blow up a note deal: 1) Taxes2) Title3) Blighted PropertyIt is possible to mitigate against 1&2 with prior research and reports.

@Ryan Pubins The prepayment is in the loan docs, how can this be mitigated due to a rate reset?

One can mitigate that risk via hedging but even then there is risk. 

We’ve all heard the IDEAL metaphor.I-income from the rentsD- Depreciation (ensures we pay little to no tax on the income)E-Equity as your renters pay off your loanA-appreciation in the right market your property should appreciate over timeL-Leverage( the ability to gain a return on 3-5 times of my original investment)Using leverage gives you the opportunity to diversify, instead of all my cash in one property I can spread that cash out on 3-5 properties which mitigates my risk.

Partnering can mitigate risks, reduce financial burdens, and leverage the expertise of others in the industry.

Definitely properly screen the tenants....I try to mitigate a lot of nonsense by askingDo you have any animals or pets?

Risk Diversification, Having many units in a single property can help to mitigate the risk of vacancy.

Sorry for the rant but I just feel like this is a gaping hole in my real estate investing acumen and could alter my strategy if I can't figure out how to be a buy/hold investor while mitigating personal liability risk with a legal entity. thanks in advance for your help and responses!