How to model a balloon date and whether refinancing or selling in year five leaves you better off.
Almost every creative finance deal has an end date: the balloon. On that date the remaining balance must be paid in one go, usually by refinancing or selling.
With 30-year amortization you have paid off only a small part after five years; with interest-only, nothing. Model the actual balance, not a feeling.
Put both scenarios side by side. Selling leaves you the price minus selling costs (usually 6 to 9 percent) minus the balance. Refinancing pulls out tax-free cash, keeps the property and the rent, but raises your payment.
You pay no selling costs and no tax on proceeds, and you keep future appreciation. It only disappoints when the new rate pushes cashflow or DSCR under water.
Negotiate a balloon of at least five years, secure an extension option and test a scenario where the value does not rise. Kavvl models the schedule, the balloon and both exits per year.
In short
A balloon is not a problem as long as you have modelled it. Decide which exit you will use before you bid.
Data from public sources and licensed feeds. Not investment advice.