IO Loans in Appreciation markets

[Jordan Feiner]

Given that LA is an appreciation market, What are your thoughts on going with an IO loan with up to 10 yrs of IO if I plan on selling in 5-8 y years? Am I missing a huge pitfall here?

[Bill F.]

Originally posted by @Jordan Feiner:

@Bill F. thanks for taking the time!

I was far too simplistic in my question, I understand the exposure if you can't sell before the principal kicks in or if appreciation stalls but if rates jump they can readjust the rate inside the IO period?!  is that in all IO loans or something you can negotiate?  If that's true, are they just great for flippers?

I'm in the rarified market of LA so appreciation is almost guaranteed and houses usually move in the first weekend or two they're on the market. Yes, nothing is guaranteed but we  I was thinking that an IO allows me to buy a bigger house, hold it for 5-8 years and use the appreciation profit for the next house on a standard 30 fixed.  thoughts?

You are welcome man. 

I still take issue with the idea that the LA market is special and somehow all but guarantees appreciation. What data has driven you to this conclusion? LA isn;t my market so all I have is Case-Schiller, which admittedly is a 10k Foot view, but it doesn't support that idea: 

The answer to the question about rates adjusting depends on the "they" in your question; an individual or a bank. That's why I asked if you are buying SFR's MF, mixed use, commercial ect. Good luck finding an IO option in the residential space from a bank. When you move into commercial loans they can happen, but I'd be super surprised if you found an IO with a period longer than 36 months from a bank and if you did it would have to come with an adjustment period, unless you have a proven corporate balance sheet and a relationship with the bank.

If you get seller financing/ Hard money, anything is possible and you could get an eight yr IO term if the owner/HML agrees to it. you need to sell them on why you need IO for so long.

Let me ask you this, would you loan me $500k of your money, IO for eight years to buy a property in Raleigh?