Interest-only loans for higher cash flow + stock market synergy.

[Alexander Gotti]

Hi all, new BP member here.

I’m considering a new strategy and wanted to bounce it off of you all... Please poke holes and give feedback.

I currently have 6 rentals, all are 30 yr loans, 3%-4% interest rates.

My lender offers a 2.5% interest-only 10/6 ARM. So my monthly payment is a fixed extremely low amount for 10 years.

So with this financing, I would take the money that would have gone towards principle payments and I'd systematically buy index funds/ETFs each month expecting to get at least 8% returns each year (on average). I'll be dollar cost averaging in to the market which is my favorite way to invest in stocks.

The downside is that it's probably unlikely mortgage interest rates will be this low in 10 years - so I might wish I had a 30 year in year 2031. But by then, after the index funds have compounded, I’ll have some optionality. Re-fi and even put an bigger down payment if I sold the index funds, or I could sell the property, etc.

I want to do this multiple times over, maybe 2-3 loans like this per year. Might even consider refinancing my current properties with interest-only loans like this.

The principle pay down is a nice benefit but it's just dead money not earning any interest. I'm also confident I could grow that money faster in Vanguard index funds or something "safe" like this.

Thoughts on this method? Any pitfalls I'm not considering?

Thanks!