I've been doing it for the past 10 years, so at least that long! The rules for deducting mortgage interest include that the property must be "at risk" in case of default on the loan, and the loan must be for purposes of buying, building, or improving the property, so for example if the source of money is a personal loan then it's not deductible. For details see IRS Pub 530:
http://www.irs.gov/pub/irs-pdf/p530.pdf
You mention friends with "several" properties - again, this applies only to a first or second personal home that is NOT rental or business property. For investment properties you would include expenses such as loan interest and property tax as business expenses on Schedule C.