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Keith Baker gets down on the basics of private loans. The three rudimentary loan concepts upon which creative lending and private lending are built are the interest-only loan, the amortized loan, the balloon payment. Learn more about these types of payments as Keith dives into each one, and prepare to get your tickets to the Quest Trust Company Self-Directed IRA Expo in Houston this August 23rd through the 25th, 2019. You can go get a 25% discount off of those tickets at PrivateLenderPodcast.com./Expo by using the promo code “PLPodcast.”
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Interest Only, Amortization, And Balloons
The Basics Of Loans - Part 1
I'll be talking about the three basic or rudimentary concepts of promissory notes, lending money and structuring loans. The beauty of private lending is that you can be very creative in the way that you construct a note. I consider these productivity building blocks for the private loan that we're going to talk about. It's basic math accounting stuff, but I figured that I get enough questions from time to time at REIAs that it's worth addressing. First, time is running out to get your tickets to the Quest Trust Company Self-Directed IRA Expo in Houston this August 23rd through the 25th, 2019. You can get a 25% discount off of those tickets at PrivateLenderPodcast.com/expo. Use promo code PLPodcast. I also want to tell you that the Private Lender Podcast is teamed up with Quest Trust Company and we're going to coordinate a happy hour/meetup at The Axis Lounge in the Royal Sonesta Galleria the evening of August 22nd, 2019. That's when after all the vendors are finished setting up, there will be vendors, speakers, sponsors of the expo. There will be attendees, VIP, general admission attendees.

This is going to be a pretty dense group of people. The Quest Expo draws in people from all over the US. Because of that, we decided we're not going to get sponsors and have email lists and chicken wings and pizza. We were trying to minimize the tire kicking and if you want to come and hobnob with these people, you don't have to pay. You can just come on out. The food and drink will not be free. You can go to my Facebook page for more information. I highly recommend that you come out. Let's go ahead and get down to the brass tacks in our topic, which is the three rudimentary loan concepts upon which creative lending and private lending is built.

These are quite simply the interest-only loan, my favorite. There's amortization or the amortized loan, and as our trusty old friend, the balloon payment. I'm a big fan of the balloon payment. It's a nice trigger for default in case you’ve got to get your money back through the property. It can be quite useful and you don't see it too much on residential, but you do see a lot of balloon payments in a commercial. Let me dive into number one, and that's the interest-only loan. There's a supplement to this. I have an amortization schedule. It's a basic investor-friendly amortization schedule and it has an option for interest-only. You just get your monthly payment.



The beautiful thing about an interest-only payment is if you loan somebody, say $100,000 at 12% for a year, then basically you're just going to get $1,000 a month. That's the interest that accrues. Your payment is $1,000 a month, but at the end of that note, you still have to pay back the original $100,000 or that balloon because it's a huge chunk. Where amortization comes in is more in your retail mortgages. Part of that payment is going to pay off the interest first and then a little bit of it will go towards paying down the principal of that loan such that after X amount of time you don't owe the full $100,000 at the end.

That's good with 30-year mortgages for your retail buyer or normal home buyers, not investors. There is a place for it and it comes in with the comm...