You need a COLLATERAL (the house you're going to rehab) and it got to be a good deal, or a house substantially BELOW market value.

So long as the building is used as collateral for the loan, it is deductible as mortgage interest on whichever schedule is most appropriate (A or E or 8829 or whatever).What sometimes happens is that CPAs will apply interest tracing so instead of taking the interest on the property where the the loan is actually secured, they will take it for whatever the loan proceeds were.This can include people who take a home equity line out on their primary residence and use the proceeds to invest in a home.  

My reasoning to offer it was similar to cross collateralization to strengthen the deal for the investor.

I am financing the entire $195k loan because we're using another property to cross collateralize it.

Explain the negotiation of Nothing Down transactionsHave they done a Control & Roll, right of possession or study period offersHow long have they been an investor, where did they trainCan they give you examples of creative financing clausesWill they give you a curriculum of subject they will train you inCan you look at their contract offers, does it have the clauses to protect you, allow you to assign, built-in extensions, discount clauses, hybrid agreement, substation of collateral language and other terms to further your investment career. 

Another option is to pledge the house as collateral on a loan when you buy the duplex.

Would you mind going over a Collateralized Assignment deal please?

You'll need to re-fi...expect 70%LTV...and be sure your lender will lend to an LLC before you get too deep into this.The other option is maybe to collateralize multiple properties through a portfolio or other private money lender...wrap some properties in a blanket, but there are a lot of different variables...

They say they are cross collateralize and not interested in selling.

I should note that I will be filing mortgages against the collateralized property and in initial talks with my attorney he mentioned something about if I filed over 5 mortgages I'd be required to be licensed, not sure what his source was.Thanks in advance!