Seriously at the end of the day you "could" deduct interest costs greater than income, ans not get sham wowed, why would you want to?
Makes no sense to me.
If it is all on the table / legal, I agree it makes no sense unless you truely expect to make more than the interest charge after tax adjustment.
But, if of 10% interest paid, 4% is given back under the table, it would make sense even if you lost some $.
Or even worse, if the person borrowing the cash actually gave the cash to the lender, agreeing that the lender' will get 1% of the 10% interest paid for their 'service', it would make sense, as the lender also gives back the paid principal as payments come in.
I know 1 sleezy real-estate person that did this type of thing because the purchaser told me after the fact. In their case the purchaser needed $30K for personal reasons and no one would lend it to them. So they agreed to buy a property the agent owned, financed 100% from private mortgage lenders at 8 - 10% interest rate, but for $60,000 more than the property was really worth. The agent got $30K more than they would have if sold it above board and the buyer got an envelope with $30K in it under the table. I could not believe it, but I guess it does happen
BTW, I believe the examples I gave above are not only sleezy and unethical but also VERY ILLEGAL. I'm not a lawyer though.
People who can't make an honest living, or are very greedy, do bad things I guess. Surprise surprise.