Analyze the terms as carefully as the price. Model seller financing, an existing loan, or both, then see the effect on cash needed, monthly income, and the future balloon.
Cash flow = effective rental income − expenses and reserves − existing payment − seller payment
WORKED EXAMPLE
With a $240,000 seller-financed purchase and $24,000 down, the seller note is $216,000. At 5% over 30 years, principal and interest are about $1,159.54 per month. Initial repairs of $10,000 and closing costs of $5,000 bring cash needed to $39,000. A five-year balloon requires paying the remaining note balance after 60 payments.
Choose a structure that matches the proposed terms
Seller financing creates a note for the price less cash paid to the seller. Subject-to keeps an existing loan in the model and assumes the seller’s remaining equity is paid in cash. A hybrid keeps the existing loan and adds a seller note for the equity not paid at closing. The purchase price must cover the modeled cash to seller and debt; inconsistent funding is flagged rather than shown as a profitable arrangement.
Distinguish payment size from the balloon obligation
An amortizing seller payment reduces principal over the selected term. An interest-only payment covers interest without reducing the note balance. If the balloon comes before the amortization ends, the remaining principal becomes due at that earlier date. The result displays the seller balance and any remaining existing debt at that point. A low monthly payment can help cash flow while still creating a substantial future payoff requirement.
Underwrite cash flow and verify the actual documents
The model includes rent, vacancy, operating costs, reserves, and both principal-and-interest payments when applicable. It does not determine whether an existing loan can remain in place, whether a due-on-sale clause may be enforced, or whether a proposed note satisfies lending and transaction requirements. Have the documents and obligations reviewed for the actual arrangement. Plan a realistic source for a balloon payoff instead of assuming appreciation or a future refinance will solve it.
Yes. For an amortizing note at 0%, the payment is principal divided by the number of payments. Interest-only at 0% creates no periodic interest payment, while principal remains due.
Does subject-to mean the lender approved a loan assumption?
No. This is a cash-flow model for an existing-loan structure. It does not establish lender consent, an approved assumption, or release of the original borrower.
Why is the balloon different from the original loan?
With amortizing payments, principal declines before the balloon. With interest-only payments, the seller principal stays unchanged until a principal payment or payoff occurs.
