Should buy and hold investors consider balloon loans?

Question

Hello everyone! I am a buy and hold investor and I need some help on what type of financing I should look into. I already have 4 conventional mortgages on my rental homes so I'm looking for a bank that can go beyond 4. Most people I heard on the podcast said I should call local banks. But I found most banks only offer balloon loans, not long term fixed rate mortgage. I just wonder if other buy and hold investors do consider balloon loans? Or I should keep calling until I find someone who can offer a long term fixed rate option?

And if someone knows such a lender in Georgia, please let me know!

Thank you!

Hua

And if someone knows such a lender in Georgia, please let me know!

Thank you!

Hua

Neil Aggarwal · Answer

There may be a bank or credit union that offers what you want. If not, there may be private money sources that can work for you.  You have to talk to everyone and see what you can find.

Matthew Saskin · Answer

You may also want to look into whether you can wrap them into a commercial loan that's cross-collateralized over all the properties.  We're in the midst of moving 5 duplexes with conventional loans into a single commercial.

As for terms (eg; balloon or otherwise) - a lot is going to depend on your appetite for risk.  We're moving to a 6 year fixed/20 year amortization loan with a balloon payment at the end, however we have negotiated the bank adding in a guarantee of renewal to a new loan at the end of the 6 year term at the same % above prime that we close the loan at (eg; we're closing now at 4%, .75% over prime.  If in 6 years prime is at 6%, they'll give us a new loan at 6.75%).  To me, this is an acceptable risk given the current cashflow from the property and the likely changes to interest rates over the intervening years.  Your own appetite for risk will vary.

Would I prefer a 20 or 30 year fixed loan?  Absolutely.  That said, at the moment it's more important to me to get rid of the 5 conventional mortgages and there are some additional benefits to moving them to a commercial loan.