Changed my mind about interest-only loans after running the numbers on a fixer-upper in Phoenix

I was dead set against IO loans for years, but I ran the cash flow on a $320k flip and the interest-only payment freed up enough to cover the reno. That one deal made me realize they have a real place if you exit fast enough. Has anyone else had a scenario where they actually made sense?

3 comments

3 Comments

dixon.spencer1mo ago

Wait you found a fixer upper in Phoenix for $320k? That’s CRAZY cheap for that market right now. I have friends out there and they say everything decent is pushing $450k plus. You must have found a hidden gem or a property that needed a TON of work. But honestly the interest only loan strategy for flips is way smarter than most people give it credit for. The whole point is to keep your cash free for the actual value add work instead of wasting it on principal payments. If you’re buying and selling within 12 months the math just works better that way most of the time. The haters are usually the ones who never actually ran the numbers on a real deal.

avery_smith221mo ago

Man that's so true. It's just like when people buy a used car and finance it for 6 years instead of paying cash for a beater and fixing it up. Everyone thinks they're saving money with the long loan but really they're just bleeding interest while the car sits in the shop. Same thing with houses. People get too hung up on the jargon and miss the whole point of keeping your money working for you. I've seen guys burn through their whole budget just on carrying costs because they wanted to feel like they were "building equity." Sometimes the smart move is not the flashy one.

cora_scott7725d ago

Did you see that case study BiggerPockets did on IO loans for flips in hot markets? They showed how carrying costs can kill your profit margins faster than almost anything else. Keeping cash in your pocket for the hard stuff makes more sense than dumping it into principal you'll never see again in 6 months.