5 year balloon what to do?

[Brandon Drzewicki]

A partner and I have a 4-unit resort style short term rental property, purchased for 430k, owe 323K on a 5 yr balloon at 4% with 37 months remaining. We looked at refinancing to a 10 year balloon at 4.5% but given the complexity of the property there were no comps so it was hard to get refinancing so we ultimately decided to stand pat hoping interest rates recover a bit by the time loan is up and because we will have more financial options in another 3 years. Now that we have made that decision I’m wondering if anyone thinks we are making the right or wrong decision and in the next 3 years is there anything we should be doing to prepare and set ourselves up for success. The property is NETTING 50-70k a year it’s a gem so we could just save all the earnings not an exciting strategy but a long range play with potentially substantial implications to be able to mostly pay it off in 3 years. However I like cash flow and the property does take work so it’s nice to one get some kick back and or two have build up some extra money to invest in other property. Any advice is appreciated! Hind sight is that we should’ve locked in a 10 year balloon on the purchase however this was first time dealing on the commercial side for both of us. 

[Scott E.]

You've got a loan at 4% with 37 months remaining until balloon... I'd hang onto that loan for the next 37 months.

Since the property is cash flowing like crazy, I'd also take ~20% of the cash flow and pay down the principal balance over the next 37 months. This will get your principal balance down to around $275k when the loan is due. A refinance at that time will be easy. Your LTV will be around 50% and it will likely be cash flowing even better than it is today.