Interest Only Vs Principle+Interest

[Brad Garcia]

I have looking into financing and have come across this idea of doing an interest only loan to purchase a multi-family. The thinking is, I really don’t have a desire to own the property, but rather maximize the cash flow the property can make and then sell in either 5 years or match closer to the terms of the IO loan (depending on market conditions, etc.)

Having more cash flow would enable us to improve the property conditions, thus rents etc, repositioning the properties performance for the future sale. Also, we are looking to reinvest excess cash flow into a liquid investment, roughly 4-5% returns, unless it makes sense to invest in the property. All revenues would be dedicated to the investment until we sell the property.

Here is the comparative analysis that I am seeing after doing my research:

	Principle & Interest (5yr 20)	Interest Only
Depreciation Expensed	Yes	Yes
Pay-Down of Note	Yes	No
Interest Rate Volatility	Lower Risk	Higher Risk (Depends on terms?)
Interest Expensed	Yes	Yes
Taxable Income	Lower	Higher
Real Estate Market Volatility	Same Risk	Same Risk
Appreciation of Property	Yes	Yes

Doesn’t it make sense to simply do an IO loan given the following controlled assumptions:

Put excess cash flow to work in alt. investment with lower risk.

Plan to sell the property in 5-10 years.

Am I missing anything, other than who does IO commercial loans?