Balloon Payments
I'd like to know what someof you think of using balloon payments in place of down payments as incentive to lure buyers. Quick example:
Seller's home - $100,000 FMV
He needs to be gone in a month. Wants 85k cash to sell. Will pay 1/2 closing.
Put down $1000 earnest to option and market it this way:
"3/2 beauty with garage, nice yard, selling for $100,000. 10% down payment deferred for 5 years. All you need is 90k mortage and it's yours. Seller will pay 1/2 closing costs" ... or something to that extent.
Bank likes the 10k spread and approves the loan.
Double close. You get 90k, give seller his 85k... you finish with 5k at closing, paid no closing cost. Buyer steps in with 10k built in equity with no money out of his pocket. Contract stipulates that 10k payment will acrue at 7.5% until maturity, at that time buyer will refi or get home equity loan to pay off.
After 5 years, the home is now worth about 130k, leaving him with 50k - 60k in equity. The 10k down payment is now worth $13750 after interest. He'll still have 40k+ to burn if he draws it all out.
Bottom line, 5k at close + 14k balloon payment = 19k profit without a dime out of your pocket.
While 14k may not sound that exciting since you have to wait 5 years for it, imagine the outputs if you can snag 10 deals like that this year.
Nice payoff down the road, huh? I believe balloon payments are win-win-win-win for every party involved.
Everybody walks away happy.
[ Edited by HOLLERatG on Date 02/21/2004 ][ Edited by HOLLERatG on Date 02/21/2004 ]
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