Today we continue our discussion with Isaac Grant. This time around, we’re going to talk about balloon payments.
Bob Nelson, Eugene real estate investment broker
Isaac Grant, Eugene commercial loan officer
Bob Nelson: Joining me today is Isaac Grant. Isaac is my favorite commercial loan officer. If I’ve got a property generating income, that was an income property, I’m going to head to Isaac first. Generally, pretty good breaks and really good terms. What I really like is Isaac understands the nature of the investment market. Isaac is with Oregon Community Credit Union. Isaac, thank you for joining me today.
Isaac Grant: Thank you, Bob. Looking forward to getting into it today.
Bob Nelson: Let’s go with an idea here. I have a property, and because of low interest rates, I wanted to pull a bunch of cash out of it to buy another one or whatever. And I refinanced the thing and I mortgaged the thing to the Hilton. I get as big a loan as I can possibly get, which with very low interest rates, we’ll make a fairly large loan. Your loans are typically … I shouldn’t say your loans.
Commercial loans typically balloon at the end of the 10th year. So the lender will take a chance on a loan, but then they say, okay, we want you to pay it off. And that may mean refinance it, but pay the thing off the 10th year. We don’t go further than that. Is that a reasonable situation with yours?
Isaac Grant: Yes sir, that’s very common in the marketplace.
Bob Nelson: Okay. What happens if I get to the eighth or ninth year and I just have to start figuring out how I’m going to refinance, and interest rates have gone up substantially? I may not be able to refinance the full amount of that loan.
Isaac Grant: Yes, a very, very important subject to think about in terms of actually planning your investment strategy moving forward. This is something that, with the low interest rate environment we’re in right now, people really need to be paying attention to is their long-term exit strategy. So is that going to be a sale of the property, or like you say, is this really a long-term hold? And so we need to refinance in that 10th year or maybe even sooner.
Bob Nelson: I appreciate that, because the people are calling me today saying, what should I do? And I’m more focused on their long-term investment strategy, making sure that we optimize whatever we have available today. But optimize also means we don’t lose it in the 10th year because you made bonehead decisions.
Isaac Grant: I think the really important thing is, the individual investment owner’s risk tolerance.
Bob Nelson: Right.
Isaac Grant: What is their risk tolerance and what is their exit strategy further down the line, with balloon payments that may be coming due on investment property?
Bob Nelson: Some people live right out on the edge, the bleeding edge of the razorblade. Others are more conservative. And it’s interesting that certain people are going to make a lot of money, and others are going to lose a lot of money. Will you join me again tomorrow?
Isaac Grant: Yes sir.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.