Private Loan with deferred interest and payments

[Ray Thorsen]

I am looking for options on how to structure a loan from friends and family. I would use the loan for dp funding to buy a couple duplexes. I do not "need" the money to qualify meaning I can cover the DP amounts but it would free up my capital to purchase more. My lender is looking for a 5 year term with no interest or payments do until the 5 yr mark. He originally wanted just a promisary note but I wanted to give him a second lien position on a building I already own with plenty of equity and no desire to refinance. The same protection I would expect from any other lender. The questions came up about me being able to deduct the interest. Can I do that even though I am not paying it every year? On the flip side does he need to claim the interest income each year? Or could we structure it to where he gets a fixed profit at the end of the 5 years without him being an equity holder? He wants to stay on the fixed income side. Would that be long term capital gains at that point?  It would most likely end my chance at deducting the interest but if I am not paying it every year what does it matter to me?