I was having a conversation yesterday with a realtor who is looking to buy some commercial rental property. I gave her some commercial lending information which included rates, prepay penalties, seller seconds (second lien issued by the seller), etc. that I found.

When she looked at the features, she chuckled. I asked what was intriguing and she stated, “these interest only payments, why would anyone want one?”

Well, right there I knew she didn’t understand finance and the relationship to real estate either. I’ll explain shortly after I let you know the rest of the conversation.

To continue, I mentioned I think it would great if you could get interest only payments for thirty years. I wanted to see the reaction I would get after making such a bold statement.

As expected, I got the deer in the headlights look as well as the typical response, which was, “you don’t own anything and you don’t build equity.”

I could have talked for hours on just the two parts of the last statement. However, I simply replied if the property values increase, so does your equity. If property values decline, why do you want your money tied up in property?

After reviewing a business plan, I said you will pay over $100,000 interest per year. She was stunned. I also told her she would make much more than the amount of interest paid. Without the loan, she would make $0 because she couldn’t do the deal.

The type of property does not matter, commercial real estate or a home and whether or not the real estate investor gets an interest only, short-term or long-term loan really doesn’t matter to me. The point regarding the loan decision is what you do with your money should determine the loan to get as I discussed in the Top 10 questions for lenders.

As far as owning anything, you own the property and rent the money.