Escalation of Interest

TRANSCRIPTION

Hey, this is Terry Hale, commercial real estate trainer.
Why don’t we just shoot a quick little video for you.
In regards to an interesting conversation that I had today,
I negotiated a project that is 110 unit apartment,
and we ended up getting a really great deal.
We ended up locking it down for 2.150,
the original asking price was north of that closer to 2.9.
So we got a huge discount, we got great terms,
we ended up getting a 10-year seller finance note;
non-recourse, which means no personal guarantee,
they’re not going to ask for a credit,
they’re not going to ask us for tax returns or
bank statements, anything like that.
And we ended up getting an attractive interest.
It was what I refer to as “Escalation of Interest.
So how do we get 10 years on a seller Finance?
No, because 10 years obviously sounds like you know,
a long time for for a seller to carry paper, right?
Typically, short-term is 24… maybe 36 months.
So this one we did, it was an escalation of interest.
So we ended up starting off with low interest,
just a couple points above prime.
So we’re at about five and a quarter percent interest.
That does escalate after the third year,
it goes up a point two, six,
and then for each year thereafter,
it goes up a half a point.
The reason why we did that escalation of interest is because
when people are actually as I call it being
“bean counters” right there,
they’re counting numbers, they’re looking at
what their return on their investment is
or what the return on their loan,
if they’re gonna be lending money.
In this case, it was a seller finance note, right?
But what was great was the seller saw how much money
they’re going to be making in interest because we scheduled
half of that time period of the 10 years,
the first five years is interest-only.
So they’re going to get five years of additional interest.
And then, of course, it falls over to
a 30-year amortization schedule.
And that’s going to be for the remaining five years.
So they’re even getting a little bit interest off of that too.
When you’re playing as I call “Play the Greed”.
When you’re playing the greed
of someone who’s counting beans,
and looking at what they’re going to be making overall,
over a period of time,
it’s advantageous for them to carry long term.
I’ve done some amazing strategies
using escalation of interest
where I’ve had sellers carry up to 29 years
as a 29-year seller finance note.
For that, they typically need
to own the property free and clear.
This one, the note actually happens to balloon in 15.
So he felt comfortable going 10. So escalation of interest,
playing on their greed to get
a longer-term seller finance note,
pretty awesome and great deal.
My clients are super happy.
Sean couldn’t be any happier.
We’re off to the races on this one.
It’s coming to fruition,
and I look forward to sharing it
with you again in the future.
Hope you liked the tip.
Go ahead and click the link in the description
or just visit TerryHale.com
and I look forward to engaging again
with you here real soon. All right? Take care.