SHARED the first five of the techniques I teach agents to
help them see the potential uses and options when it comes to
seller financing. (See Paper:
Your Most Valuable Tool.)
One of the most important tools when it comes to paper are
the various options available for avoiding balloon payments.
Balloons have been called "foreclosures in
embryo." I shared some techniques about 14 years ago
in a Magazine article I titled "Balloons are For
Clowns." Here are a few more.
All four of these techniques relate to ways to avoid or
minimize the impact of balloon payments. This is just a
sampling, there are many more options we'll talk more about
BALLOON PAYMENT - EXTENSION RATE
Instead of a balloon payment, an increase in the interest
rate could take place at a certain time period. For example,
at 60 months, the 10% interest rate may jump to 15% or some
other rate that the seller might be happy with. What would the
seller do with the cash if he or she were paid off? Plug into
the note a rate that might make the seller happy with their
rate of return. A higher rate may encourage the buyer to
refinance, which would accomplish the same purpose.
BALLOON PAYMENT - SELL THE NOTE
Five years into the note, the note may be well seasoned
with a good payment history. At that time, the note could be
sold for cash to a note investor. If there were originally a
balloon, it could be structured that with a good payment
history and an acceptable "Loan to value" ratio
(based on current property values), the note could be extended
for another 5 years. This seasoned, short term note with a
good payment history could be sold for little discount.
BUBBLES INSTEAD OF BALLOONS
A small balloon payment for less than the full amount of
the note is sometimes referred to as a bubble. What are the
seller's needs? Could smaller lump sum payments over a few
years actually meet their needs? Do they have kids in college
or other special needs? As a note broker, it is sad to see
sellers sell a large note and take a big discount just to get
a small amount of cash. At other times, sellers receive their
balloon payments and then turn around and put it in the bank
at half the rate they were receiving on the note. Be sensitive
to the seller's needs.
PARTIALS INSTEAD OF BALLOONS
One way for a seller to receive cash at a particular time
period is to arrange to sell the next few years worth of
payments to a note investor at that time. For example, instead
of a balloon payment in 60 months, a few years worth of
payments are sold at that time.
Agents find these techniques valuable and note investors
find that they are a good addition to teach in a sales meeting
About the Author . . .
John D. Behle is one of the foremost educators and
practitioners in the field of discounted paper investment. His
innovative strategies and techniques have shaped the industry.
With over two decades in the industry and an extensive
background in real estate and finance, John Behle adds a
wealth of knowledge and experience to his creative
John holds an National Council of Exchangors "Gold
Card" and an EMS designation. He is also listed in Who's
Who In Creative Real Estate. John Behle is the author of
several hundred articles published in national magazines and
newsletters and of several ground-breaking real estate paper
* The Paper Game Trilogy
* The Paper Game 5-Day Video Training
* Millions Of Mortgages In Minutes