Why does nobody talk about the risk of interest-only loans for rental properties?

I tried an interest-only loan on a duplex I bought in Cleveland three years ago to free up cash flow, and while it worked great at first, property taxes jumped 20% last year and now I'm underwater on payments. My lender kept saying it was a solid strategy for investors, but I'm wondering if the short-term gain is worth the long-term headache. Has anyone else here had a similar setup backfire, or do you think it still makes sense in the right market?

2 comments

2 Comments

adamgreen10h ago

Read an article saying interest-only loans work until the market shifts, then you're stuck.

fiona_young7h ago

Honestly, I gotta push back a little here because I see it differently. Interest-only loans can be a solid tool, but only if you plan for the worst, not just the best case. @adamgreen is right that market shifts are the real danger, but the problem isn't the loan itself, it's people jumping in without a cushion for taxes or repairs. I've used IO loans on two properties and kept a separate savings account just for tax hikes and vacancies, so when rates or assessments go up, I'm not panicking. The issue in your case sounds more like the lender and maybe a lack of upfront planning, not the strategy being broken. If you can't handle a 20% tax jump without going underwater, then maybe the market or the property wasn't a good fit for IO in the first place.