Another benefit of holding houses long term in a market where prices have not historically risen very fast is to be able to have a tenant pay off the loan over time. I bought houses on the Mississippi Gulf coast that I held for 20 years without much appreciation at all. But over that time, they were completely paid off with rents. When I sold them, I netted $330,000 despite the fact that I only saw them three times, and paid retail prices for management and maintenance over the entire two decades. My point is that just three of these deals would have made me a millionaire in the same 20 years that most people struggle to make a living without any savings at all.
Twnety years seems like a long time when it is in the future, but doesn't seem very long ago when you look back at it. If you can negotiate zero interest financing, you can make the loan pay down much faster. For example, interest rates vary with each type of loan, but suppose that $100 of a $1000 loan payment went toward paying down the principal on a $200,000 house; with $900 going toward interest. That means that it would take over 2000 payments to free and clear a house. On the other hand, suppose the entire $1000 went toward paying down the principal. Can you see that you would be able to pay off the house 20 times faster or 100 payments to do the same job.
Getting an owner to agree to zero interest financing requires a lot more negotiating skill than getting the same owner to lease a house for $12,000 per year, with the first year paid in advance; all payments to be credited against the purchase price of $200,000. Even if the house were financed, the credit against the purchase price would override that financing. In all probability, once the credit for rents matched the equity above the current financing, the Option would be exercised and title to the house conveyed subject to the remaining loan balance.
No matter how long it takes for this to happen, the entrepreneur would have no negative cash flow, no interest expense, no maintainence expense, and very little risk; thus could concentrate upon up-scale houses that would attract better tenants.
