Commercial loan balloon payment

3 Replies

I've been looking at a couple 6 and 8 plex buildings in my area as my first investment property and I was just wondering how you all deal with the balloon payment of the commercial loan? There's no way I would have that much capital in such a short period. Are there any options besides trying to refinance or sell?

You are smart to see far enough ahead to recognize this as a huge problem @Account Closed .  What were you quoted - a 5yr balloon?

While listening to Kevin Bupp, he starts the refi searching process 18-24 months prior to the balloon date.  He also thinks with appreciation, forced or organic, he will be able to refi or sell.  He also lost his a$$ completely in the last down turn.  But he's a syndicator, so why should he care anyway.  

I can't imaging going through the refi process every 5 years.  Some of my appraisals alone would be $3500.

I'd look for a commercial loan that is callable but not necessarily a balloon. I paid all of mine off this year specifically to be rid of this risk and the hassle of them bothering me every year for my financials like I'm a child.  They requested my stuff and I requested a payoff quote.  Now I only use private money or seller financing.  Good luck!

@Account Closed

Congratulations on having the wisdom to look into the future to anticipate emerging pain points. Dealing with a balloon payment can be a hassle. It all boils down to a few things:

  • Do you expect your asset value to keep rising? If so, by how much?
  • Is the expected rise in your property value more or less than your other investment options?
  • Depending on the terms, you can start the re-fi process 18-24 months in advance. It can be a hassle but depending where the local economy is heading, it can be an easy or arduous process.
  • Although a major hassle, I feel that having all the documents ready for re-fi serves a second purpose: It forces you to have your financial house in order and take a hard second look at your asset. Remember this is a business, so you need to take unemotional decisions based on future projections without thinking about past performance.

Options:

  • Private money
  • Re-fi into a new commercial loan
  • Partnering with someone who can bring the capital into your deal
  • Syndication

There is no right or wrong answer. Everything has to be suited to your needs and the type of asset/market you are dealing in. 

@Steve Vaughan "He also lost his a$$ completely in the last down turn. But he's a syndicator, so why should he care anyway. "  Wow that is a little harsh statement on Kevin and any other Syndicator.  I can tell you why he should care, besides the obvious of taking serious his fiduciary responsibility to care for someone else's money. Kevin and most syndicators are in the business for the long haul, and if he doesn't care and treat his customers right, he is out of business.  It is great to hear different views, but inappropriate to smear Kevin or any other syndicator trying to provide a service to those that can't or are not able to do the work themselves.

Back to the issue at hand, there are 10 year commercial loans and other options as @Omar Khan has pointed out.