All Forum Posts by: Kiley N.

 Thanks @Derrick Ward.  It's been great to read so many different perspectives on this topic.  

Fantastic @Suzie Remilien congratulations!

Hi @Donald S.

With any commercial endeavor, a bank would generally prefer you to have some skin in the game.  After you've built up a great relationship with a lender over time, you may be able to secure financing with less of your own money in each transaction.  

From a lender's perspective, the purpose of a 5-year balloon structure is not so much to make more money off of you as it is to mitigate their risk in the transaction.  The interest rate risk is one thing but there are other factors at play as well.  For example, if you're new to the lender they may initially perceive you to be a greater operational risk (i.e. how good of an operator is this person?  How likely is he to weather a market downturn?  Etc.).  A demonstrable history of investing success may be one of the reasons why @Joel Owens is able to secure 10 year fixed rate financing.  

As for interest rate risk in the current rate environment, the trend of rising rates typically leads lenders to shorten their terms.  3 to 5 years in your example.  However, if they are too conservative they will lose out on loan opportunities to other lenders.  It's up to you to shop around.  

That said, the real value from a lender comes when times are tough.  Will your lender stick by you and fight for you when rates rise or when the market turns against your property?  This is why developing a relationship with your lender is important.  

Anyone can lend money when times are good.  

No one can predict how things will change over the next 5 years.  Even modeling the next year is a challenge.  

If something completely out of your control happens to move against you, having a good lender is worth more than a few percentage points (much more).  

Hope you find a good one!

Great discussion!  It's clear to see that there are as many philosophies as there are investors out there.  No doubt many here have been successful using 15 year terms and many have found success using 30 year terms.  

@Alex Corral There is no one right way to do this.

What matters is that your logic makes sense to you and that it mitigates the risks that you perceive in each investment.  There's also no law against being open to other thought processes and pivoting your strategy over time.  This kind of dialogue makes us all better investors in the long run.  

Thanks for sharing everyone.  

Hi @Mackal Smith

It sounds like you have a "good problem".  I will address your concerns to the extent that I can without knowing the specific details of your personal financial condition and that of your portfolio.  

***As @Brie Schmidt mentioned, please confer with your relevant professionals.  None of this should be considered financial/legal advice.***

In general, lenders do value your consistent repayment history.  None more so than the lender to which you've made those timely payments.  Speaking to the commercial loans, the main focus of your company's ability to repay the loan is on the cash flow of the business.  Because of this, your primary contribution to this loan is your ability to MANAGE and extract cash flow from your properties (primary source of loan repayment), NOT your personal assets (secondary source).  Your personal financial strength is considered to be a secondary source of repayment and comes into play in the event that the properties can't repay the loans themselves.  

As you know, past results are not directly indicative of future success. The market/rate environment may be different when your 5-year period is up for reconsideration.  This is one reason why lenders do not commit to the entire 20 years up front.  

A lack of W2 income will raise flags if that income was relied upon as a key support of the loan approval.   This could be because the lender did not have complete confidence in the ability of your business to repay the loan through the properties (i.e. short/no business history, inexperience of the business manager, foreseeable market challenges, etc.).  

From what I can gather from your post:

• You have a portfolio of cash flowing properties
• You have a history of successfully acquiring and managing them
• You have personal assets to support loan payments in case something goes awry

These are all supportive aspects of your loan.  

Having a dialogue with your lender(s) will be important as they will know how their institutions look at profiles like yours and can recommend steps to be taken to make your position stronger in their eyes, if necessary.  

Best of luck!  Keep us updated on how it goes!

***Note again, please confer with your relevant professionals. None of this should be considered financial/legal advice.***

Hi @Alex Corral

If you end up selling this property after only a few years, there won't be much difference in the amount of interest you've paid.  The difference will come into play if you hold the property for a longer period of time.  

Time is money and money is time.  It takes more time to accumulate funds at $40 per month than at $146 per month.  

For illustrative purposes and all else being equal, cash flow over time for each scenario will be:

$146 per month for 15 years = $26,280.  

$40 per month for 15 years = $7,200.

Paying more interest on the 30-year loan is the cost of buying yourself more time upfront ($26,280 - $7,200 = $19,080).  

The question is:  What will you do with the time you've purchased?

@John Barr

Wow.  Fantastic post.  Can't upvote it enough.  Thanks for taking the time!

Looks great, the lighting alone made a big difference!  Would be interested to see the numbers if you're willing to share!

Love it!

Welcome @Harold Petty !  It's great to have another addition to the Japan RE family!  I am also looking to get into the market myself.  Looking forward to comparing notes with you along the journey.  

Best of luck to you!