Scenario:
You're an investor who wants to buy for cash flow. You plan on holding the property forever. You buy a self storage property for $1,000,000 at a 9.25% cap rate. You put down 20% ($200,000), so the loan principal amount is $800,000. The annual interest rate is 5.85% and the amortization period is 30 years. You have 5 years until the balloon payment.
This leaves the monthly payment at: $4,719.53
Total monthly payments: $283,171.80
Total Amount Paid: $1,026,213.62
Total Interest: $226,213.62
Balloon Payment: $743,041.82
Though it would be tight, you would be able to pay the monthly payment of $4,719.53 since the NOI is $92,500. This would leave $2,988.80 per month in cash flow, but how would you have enough money to pay the balloon payment in 5 years? Would this deal even make sense?