Large loan with interest vs. small loan + personal contract

[Tamas Z.]

Hey all,

I was hoping to start a discussion about trade-offs involving how much of the purchase price of a property is done through the loan, versus separately handled contract between individuals.

Assuming the seller is okay with receiving a portion of their payoff in installments separate from the lump sum from the loan/escrow process, what are some of the more subtle considerations?

The big one seems to be the tax write-off in paying more interest, so depending on the length of time you want to hold onto the property, there's probably an optional balance point. If you intend to hold it a very long time, then maybe it's best to pay it off aggressively and not pay all that interest, even though it can offset your taxable income. If you plan to flip it, then might as well get all the interest in the world for a lower monthly payment, so you can invest in whatever improvements you want to make.

But are there other major factors that should play a big role in deciding where this balance point should lie? (Aside from "trust" - assume we trust over another and just want to create the best deal)

cheers!