Christian OsgoodCEO, Multifamily Strategy · CEO at Multifamily Strategy

Why LONGER Terms are BETTER!

13 Sept 2023 · 0 min

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Christian Osgood argues that 10-15 year loan terms beat short 3-year balloons, even at higher rates today. When your balloon matures, you're stuck refinancing at whatever rates exist then, potentially 8% or higher. Longer terms let you ride out market cycles instead of gambling on future rates.

I've had people look at this where they're like, oh my gosh, I can get this amazing interest rate on this 3-year balloon. I'm like, well, I don't know where the market's going to be in 3 years. We didn't know where the market was going to be last year. I mean, no one expected it to be where it is today. I just don't know where it's going to be in 3 years. But I do know that in a 10, 15-year period, we're going to have downs, we're going to have ups, we're going to have opportunities to change your debt stack in a 10-year period. The longer that debt, the more opportunity you have.
And because then if you have to refi out of it, you're going to refi into like an 8% interest rate, then it wasn't all that great of a deal.
Like, if all your value is in the terms, the length of those terms is all the value. As soon as those terms end, you're stuck with whatever market had.