Posted by waynepdx on June 09, 2001 at 01:26:46:
One of the main reasons people are not worried about baloon payments is for the following reasons (please forgive me if I jump around on the subject a little bit)
If you buy a property, the balloon payment is attractive to the seller because it minimizes the time it takes them to basically get all of their money. The balloon payment is a tool to motivate them. IF you evaluated the property correctly and no that it is self sustaining (meaning it will generate enough income to satisfy all monthly financial needs), then you know there is a positive cash flow. Now anytime, (hopefully much sooner than later), you go to to a tradional lender and refinance. You now have a 30 year or whatever year mortgage you want on the property and have made the balloon payment go away. If you go to a bank and show that the property generates enough income to pay a mortgage then you not only save in the difference of the interest rate the seller of the property was carrying, but more importantly, the rent is now considered income and you have solved the most important problem that a bank would laugh at you for if you just tried to go in and get a mortgage with them in the first place (INCOME).
I am sorry if this is winded but there are many factors that need to be explained to show why balloon payments are just an instrument of financing and not a liability.