All Forum Posts by: Aidan Birmingham

Quote from @Aidan Birmingham:

Quote from @Doug Smith:

Quote from @Aidan Birmingham:

Quote from @Doug Smith:

The answer is $200,619.29. Get yourself an amortization schedule. Use the loan amount and interest rate you mentioned, but subtract off 18 months from 480 months to account for your interest only period. Run that schedule. Then take your 10 year balloon amount and subtract 18 months from that to get 102 months. Look at the balance due after that payment. That's how you figure out the balloon payment. 

Your first 18 months will simply be ($225,000 X 3.75%)/12. Then go to your amortization schedule and month one on that will be month 19 on your pay schedule for the next 462 months (just adding 18 to the number on the amortization schedule. 

Yes, most of the interest will be stacked in the beginning as the balance is much, much higher at that point. In a simple interest amortization, they are paying interest each month on the amount still owed, so the principal part will gradually increase and snowball as the debt is paid down. 

As to structure, have a good creditor rights attorney draft it...not just anyone, but someone with experience working with and for lenders. 

Good luck to you. Let me know if you need any clarification. Doug 

After reading this a second time I am confused by why month 1 for interest and principal payments would be month 19. I plugged the numbers into a TVM calculator and got the following: 

Monthly payments after interest only 18 month period- $921.01

 Then for the ballon payment I got - $198,873.04

There’s no amortization (pay down) for months 1-18 and the balance doesn’t change, so you would subtract 18 from 480 (40 years) to put into the term. Your 10 year ballon is up only 102 months after the interest only period is up (120-18) so that balance on that date is your balloon payment. The remaining months on the amortization schedule become irrelevant, does that make sense? 

Yes that makes sense now. In that case are my calculations above from the TVM calculator correct? 

I’m actually at a charity event. PM me and I’ll run #s for you tomorrow. 

Quote from @Aidan Birmingham:

Quote from @Doug Smith:

The answer is $200,619.29. Get yourself an amortization schedule. Use the loan amount and interest rate you mentioned, but subtract off 18 months from 480 months to account for your interest only period. Run that schedule. Then take your 10 year balloon amount and subtract 18 months from that to get 102 months. Look at the balance due after that payment. That's how you figure out the balloon payment. 

Your first 18 months will simply be ($225,000 X 3.75%)/12. Then go to your amortization schedule and month one on that will be month 19 on your pay schedule for the next 462 months (just adding 18 to the number on the amortization schedule. 

Yes, most of the interest will be stacked in the beginning as the balance is much, much higher at that point. In a simple interest amortization, they are paying interest each month on the amount still owed, so the principal part will gradually increase and snowball as the debt is paid down. 

As to structure, have a good creditor rights attorney draft it...not just anyone, but someone with experience working with and for lenders. 

Good luck to you. Let me know if you need any clarification. Doug 

After reading this a second time I am confused by why month 1 for interest and principal payments would be month 19. I plugged the numbers into a TVM calculator and got the following: 

Monthly payments after interest only 18 month period- $921.01

 Then for the ballon payment I got - $198,873.04

There’s no amortization (pay down) for months 1-18 and the balance doesn’t change, so you would subtract 18 from 480 (40 years) to put into the term. Your 10 year ballon is up only 102 months after the interest only period is up (120-18) so that balance on that date is your balloon payment. The remaining months on the amortization schedule become irrelevant, does that make sense? 

The answer is $200,619.29. Get yourself an amortization schedule. Use the loan amount and interest rate you mentioned, but subtract off 18 months from 480 months to account for your interest only period. Run that schedule. Then take your 10 year balloon amount and subtract 18 months from that to get 102 months. Look at the balance due after that payment. That's how you figure out the balloon payment. 

Your first 18 months will simply be ($225,000 X 3.75%)/12. Then go to your amortization schedule and month one on that will be month 19 on your pay schedule for the next 462 months (just adding 18 to the number on the amortization schedule. 

Yes, most of the interest will be stacked in the beginning as the balance is much, much higher at that point. In a simple interest amortization, they are paying interest each month on the amount still owed, so the principal part will gradually increase and snowball as the debt is paid down. 

As to structure, have a good creditor rights attorney draft it...not just anyone, but someone with experience working with and for lenders. 

Good luck to you. Let me know if you need any clarification. Doug 

Quote from @Aidan Birmingham:

Quote from @Chris Seveney:

Quote from @Aidan Birmingham:

Quote from @Chris Seveney:

Quote from @Aidan Birmingham:

I am closing a seller financing deal but am confused with how monthly payments are split up between principal and interest. How do I determine how much principal is owed at the 10 year mark for the balloon payment? I have looked at amortization tables but the payments seem to be almost 75% interest in the first 10 years. Is there a good way to structure the agreement? 

The terms are below: 

Sale Price: $230,000

- Down Payment: $5,000

- Loan Amount: $225,000

- Interest Rate: 3.75%

- Loan Term: 40 years (480 months)

- Interest-only for the first 1.5 years

-Year 10 ballon payment due: X (Refi Loan with bank)

The first 1/3 of term will be primarily interest. When you have a 40 year term, even though the interest rate is low, your monthly payment is going to be very low which of course most of it goes to interest. Questions I have regarding this are what is the approx. value of the property. Typically with seller finance you get deal on price or terms. This one you are getting very good terms, so curious what the actual  value is.

The Zillow estimate has it at $235,000. But then rents are currently greatly under market and seller has decided price, interest rate, and balloon payment. I am asking for low down payment, long loan length, and interest only first 18 months to allow property to stabilize and adjust rents ect. 

 I would get an appraisal done on the property as well, zillow values are typically worthless. My house is off by $300,000 in one direction and my neighbors is $300,000 in the other. 

I agree Zillow estimate is not the end all be all but I am not as concerned with the exact value. I am focused on cash flow and I own a property close by and am familiar with the area. 

Why are you not concerned about the exact value?  You are trying to be a REI right?  ALL EXACT values are important.  How does "knowing the area" exempt you from needing to know the "exact value"?

Quote from @Aidan Birmingham:

I am closing a seller financing deal but am confused with how monthly payments are split up between principal and interest. How do I determine how much principal is owed at the 10 year mark for the balloon payment? I have looked at amortization tables but the payments seem to be almost 75% interest in the first 10 years. Is there a good way to structure the agreement?

The terms are below:

Sale Price: $230,000

- Down Payment: $5,000

- Loan Amount: $225,000

- Interest Rate: 3.75%

- Loan Term: 40 years (480 months)

- Interest-only for the first 1.5 years

-Year 10 ballon payment due: X (Refi Loan with bank)

I assume you are interested in investing in real estate long term. If so, one of the most important things to possess is a true understanding of compound interest and amortization. Many opportunities present themselves because others do not really understand interest and how it relates to principal, equity, leverage and risk.
The quickest and easiest way to gain a working knowledge, which will put you ahead of 80% of real estate investors is to get hold of a copy of a book written 40 years ago.  Invest in Debt by Jim Napier.  I have never read anything by anyone with the clarity, insight and knowledge as Jimmy put into this book.
Full disclosure : Jimmy Napier was a friend and business associate of mine, and he’s the one that got me into investing in mortgage notes, which we called trust deeds in those days.  However, don’t let the title of the book fool you, the information in the book is just as relevant to the real estate investor as it is to the note investor.  

Quote from @Aidan Birmingham:

Quote from @Chris Seveney:

Quote from @Aidan Birmingham:

I am closing a seller financing deal but am confused with how monthly payments are split up between principal and interest. How do I determine how much principal is owed at the 10 year mark for the balloon payment? I have looked at amortization tables but the payments seem to be almost 75% interest in the first 10 years. Is there a good way to structure the agreement? 

The terms are below: 

Sale Price: $230,000

- Down Payment: $5,000

- Loan Amount: $225,000

- Interest Rate: 3.75%

- Loan Term: 40 years (480 months)

- Interest-only for the first 1.5 years

-Year 10 ballon payment due: X (Refi Loan with bank)

The first 1/3 of term will be primarily interest. When you have a 40 year term, even though the interest rate is low, your monthly payment is going to be very low which of course most of it goes to interest. Questions I have regarding this are what is the approx. value of the property. Typically with seller finance you get deal on price or terms. This one you are getting very good terms, so curious what the actual  value is.

The Zillow estimate has it at $235,000. But then rents are currently greatly under market and seller has decided price, interest rate, and balloon payment. I am asking for low down payment, long loan length, and interest only first 18 months to allow property to stabilize and adjust rents ect. 

 I would get an appraisal done on the property as well, zillow values are typically worthless. My house is off by $300,000 in one direction and my neighbors is $300,000 in the other. 

Quote from @Aidan Birmingham:

I am closing a seller financing deal but am confused with how monthly payments are split up between principal and interest. How do I determine how much principal is owed at the 10 year mark for the balloon payment? I have looked at amortization tables but the payments seem to be almost 75% interest in the first 10 years. Is there a good way to structure the agreement? 

The terms are below: 

Sale Price: $230,000

- Down Payment: $5,000

- Loan Amount: $225,000

- Interest Rate: 3.75%

- Loan Term: 40 years (480 months)

- Interest-only for the first 1.5 years

-Year 10 ballon payment due: X (Refi Loan with bank)

The first 1/3 of term will be primarily interest. When you have a 40 year term, even though the interest rate is low, your monthly payment is going to be very low which of course most of it goes to interest. Questions I have regarding this are what is the approx. value of the property. Typically with seller finance you get deal on price or terms. This one you are getting very good terms, so curious what the actual  value is.

The answer is $264,616.16. Get yourself an amortization schedule. Use the loan amount and interest rate you mentioned, but subtract off 18 months from 480 months to account for your interest only period. Run that schedule. Then take your 10 year balloon amount and subtract 18 months from that to get 102 months. Look at the balance due after that payment. That's how you figure out the balloon payment. 

Your first 18 months will simply be ($225,000 X 3.75%)/12. Then go to your amortization schedule and month one on that will be month 19 on your pay schedule for the next 462 months (just adding 18 to the number on the amortization schedule. 

Yes, most of the interest will be stacked in the beginning as the balance is much, much higher at that point. In a simple interest amortization, they are paying interest each month on the amount still owed, so the principal part will gradually increase and snowball as the debt is paid down. 

As to structure, have a good creditor rights attorney draft it...not just anyone, but someone with experience working with and for lenders. 

Good luck to you. Let me know if you need any clarification. Doug 

Simple math.  You are using a 40 year term. Thus very little principal is paid off.

Your amort table is showing you the correct balance.  

You can do two things to pay more principal.  Shorten your term rate.  Since you are paying less in monthly payments.  You should be cash flowing more.   You can choose to either pay more each month or save the money and pay down more principal at the balloon date.