Is anyone using all interest loans as a strategy?

[John M.]

I'm trying to retrain my brain on this kind of product compared to the traditional Principal and Interest.  My thought is why wouldn't I do an all interest 10 year loan at 4.99%?  Prepayment penalty is only the first 3 years at a 3,2,1 rate.  My thought is most of your traditional loans are mostly interest in the early years anyway so why not.  This particular property has increased rents every year at 2.5% so that will be the only equity that I am building since I'm not paying down principal.  The increased cash flow is a form of equity I can use/build up to keep on reinvesting.   Thoughts?

[Joe Villeneuve]

Quote from @Eliott Elias:

What's your long term play? If you're holding 10 years+ avoid interest only, you're wasting time. If appreciation is your game (which I don't recommend) interest only is fine to make the property cash flow. 

Actually it works great for both the CF and equity plays.  Equity build up from paydown of the mortgage payments is so small in the first 20 years, it really has little impact, compared to equity gained from appreciation.  Since equity gains from appreciation has nothing to do with existing equity, only property values, IO loans have no impact on it as a huge gain.  The positive CF gains are obvious.