One such variation is the important technique called “Raise the Price, Lower the Terms.” Simply put, this technique calls for the buyer to offer the seller more than he is asking for the property in exchange for flexibility with the terms. For example, one investor we know of recently took an interest in Jacksonville, Florida estate house with adjoining triplex. He offered to raise the sales price by $5,000 if the seller would lower the down payment requirement and accept payments over 15 years. By using this technique, he out acted the competition and won over the seller despite the hue and cry of all the relatives in the background.

Technique No. 6 The Balloon Down Payment

An investor in Milwaukee recently bought a small rental home for $35,000 by putting on a new first of $15,000 and having the seller “carry back” the rest (no payments, no interest) after a small down. The seller would do so only after the buyer agreed to pay out the indebtedness after five years. The buyer of a $245,000 7-plex in Lake Worth, Florida, assumed the existing first and induced the seller to carry back the remainder of his equity after the $50,000 down payment (obtained from a partner) in the form of a second at 12%. The seller agreed, but only on the basis of a ten-year payout of the balance of the second.

Both of these investors were using the technique referred to as a “balloon mortgage”.

It is not uncommon for seller-financing arrangements to include provisions for a balloon payment in the future. In fact, balloons are an important inducement to get the seller to play the part of the lender in the first place. Knowing that the major part of his equity is coming in the near future, the seller is willing to carry the financing at rates below the conventional market. Occasionally a seller is willing to amortize the entire amount of the carry back over long period of time – fifteen or twenty years or longer. Most of the time, however, the seller wants to be paid off sooner, in fact, as soon as possible. And that is the danger the buyer must be aware of – short-fuse balloon notes can rob the buyer of health, sleep, and sometimes the property itself. In theory, the time of the balloon payment should be far enough away to take advantage of interim appreciation. Property values and rents must grow enough to permit a refinance solution to the balloon payment.