10yr Interest Only for Quadplex? First Deal

[Evan Tuuk]

I'm under contract on two duplexes (next to each other on the same property so I just call it a quadplex). We are set to close in 2 weeks and we've hit a little snag in the process! We are going with commercial lending because we couldn't get anyone to take it on the residential side. My plan has been to self-manage for the experience, and do a slow value add with two units that need some updating. Now lending wants to require that I hire out the management. That puts me at a negative cash flow and would require a much more aggressive approach to adding the value which I'm not sure I'm up for. 

We were working with a 30-year fixed loan at ~4.6%. Another loan option is a 10yr Interest Only at ~4.5%. Any thoughts or concerns with the Interest Only? The cashflow looks nice, of course, and the 10 year option gives lots of time to really improve the property and boost rents, etc. But I know I'm then not really building equity in the property either. So many things to consider. I'm trying to strike a balance of trying to tackle problems that arrive and not just back out because it's different or scary, and recognizing when it's not a deal I'm willing to do.

Any tips, advice or encouragement?! Thanks!