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PLP-081 Interest Only, Amortization, And Balloons

PLP 81 | Structuring Private Loans

PLP 81 | Structuring Private Loans


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 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 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.

With the interest-only loan, you don't have to worry about how much is going to principal and how much has gone to interest.
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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 commercial and sometimes with the residential as well. You can have a 30 or 20-year amortization that will be based on that amortization schedule. However, in say five years, there will be a balloon payment that note will be due. You have to pay back all of whatever’s left on your principle. Whatever interest is owed and you don’t have to pay back your interest as well. That is the basic concept of the three ways that private loans are structured. I like the interest-only because you don’t have to worry about how much is going to principal and how much has gone to interest.

You can figure out how much interest somebody paid for their 1098 at the end of the year. It’s very simple with some simple math, pencil and paper. You don’t need a big calculator. I’m not all that smart and I don’t like math that much. That’s why I liked the interest-only. It just keeps it easy for me. Even when I loan to owner finance deals, like my friend Mitch Stephen or Landon, those are interest-only loans. At the end of those three years, all that money has to be back or they have to refinance me out or I’ll do another loan for them at an agreed rate for usually three years on those type of deals. Those guys need at least three years to get the cash moving.

PLP 81 | Structuring Private Loans


If you’ve got any questions, hit me up at I know I’ve rushed through this a little bit and we’ll get into it a little bit more. This is part one and we’ll put a little bit more detail on part two. Those are the three things you need to get your head around in the word amortization, interest-only and then the balloon payment. That’s all I’m going to have for you. I want to say thanks for reading. Remember, go to to get 25% off your ticket to the Quest Self-Directed IRA Expo.

Come by the kickoff happy hour at The Axis Lounge at the Royal Sonesta Hotel in Houston, Thursday, August 22nd, starting at 6:30 PM. The only thing I ask for reading to this episode is please help spread the word about it and leave an honest rating and review over at iTunes because it’s the 400-pound gorilla in the room. I would appreciate a rating and review, whether it’s on Google, Stitcher, SoundCloud or many other various platforms out there. It helps get the podcast into the minds of more and more people. For that means more and more successful lenders without banks for Wall Street. It’s more without banks because once the money tightens up, it’s the private lenders that are going to keep the economy going on the housing market and the less than desirable unlisted properties.

I’d love to give them my best Satchmo what a wonderful world. That’s the goal here at the show is to create as many private lenders so we don’t need banks to facilitate our investing. Remember, I don’t show on Wall Street. This is just a part of good diversification. Most of these economies are round up because of it. Also, if you could please connect with me on social media, like many of you have already. I’ve got a little audience. I’m on Facebook, Instagram, Twitter, LinkedIn and BiggerPockets. It’s time to say goodbye. Besides health, wealth and happiness, I do wish for your self-awareness and of course, much successful and profitable private lending. I hope you take care and we’ll see you in the next episode.

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About the author, Keith Baker

My ultimate goal is to create an economy for Real Estate (and other) Investors where banks are no longer needed. An economy where every day people look to each other for leverage and support. During the day I am an insurance adjuster for the oil field, where I handle millions of dollars of other people's money (OPM), and by night I invest in Real Estate and host this podcast. I hope you have an excellent experience and find real value within this website and the Private Lender Podcast. Please leave comments or submit your questions on the Contact Page.

I wish you prosperous, safe and happy lending and investing!

Thanks for listening


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