BiggerPockets

If you have enough of your own money to comfortably handle any problems that may arise, not get cut short and be scrambling for money in a few months when you might be over budget, I'd use my own money, but factor the huge origination and monthly interest that you'd pay for hard money when figuring out total costs, sort of pay yourself the savings somehow like put some of it into a retirement account (or vacation fund!). If there's even a chance you may fall short with your own funds, I'd get the hard money first, not scramble for it when you need it.

Good points. I guess I am thinking worst case scenario if you use someone elses money and everything goes wrong after you calculate all the numbers your not losing your own cash.

Steve S.,

As a lender this is the type of attitude that we cringe at...only caring about your own risk and not about your lenders risk. The total risk of a leveraged deal is higher than for a cash deal because of the added interest costs. The risk however is split between 2 parties.
As a lender, I like borrowers with the attitude that "I am going to pay this lender back if it is the last thing I do". Not the ones who say who cares if it goes south, it isn't my money.
Remember, you aren't just a home buyer looking for money for shelter. You are a business person borrowing business capital. We want to know you are going to bust your butt to make the business work to pay us back.

There I go, longing for the good old days. :-)

Using a hard money lender means you have to work harder to find better deals to offset the cost of the cost of lending. This takes more time, also costing you more. In a lot cases, if not most cases, the deeper the discount, the greater the risk.

You have to ask permission often time to get draws on the loans during extensive rehabs and basically have to ask your "daddy" if you are okay and if you can continue.

Using your own cash is less paperwork, which means less time, too.

As far as being smart about risk, I think you are being too clever for yourself. If you rehab a house and its a flop and not a flip, I doubt you will just say, oh well, let it go. The repercussions of that decision not only equal getting blackballed fromm HMLs, it will be a real forclosure on your credit report which will get you blackballed from consumer credit and mortgages and possible have negative affects on your business depending on how it is structured.

So in reality, you will end up paying points and fees and penalties out the arse to the HML over time until the house finally sells because it will always be better to pay an extra 2000 dollars to avoid a foreclosure if you can afford it. And that will be your "business decision" come that time. Garaunteed.

If you use your own money, your money is tied up for a few months until the house sells. If it doesn't sell right away, you are not enslaved to a lender.

Further, it appears to be a pattern that the most successful and wealthy investors LEND their money as HMLs. That means they are using their own money and not using HMLs. Think about that. As a car wholesaler, how likely are you to take out a car loan to avoid risk?

Steve

It depends on your business model. If you are only doing one flip at a time (or its your first flip), and hoping for the large profit then use your own cash.

If you are doing several flips for less margin but make up for in quantity, then leverage the money. As long as your ROI outpaces what you pay in HM, then it is worth it. This model only works if you move quickly and sell quickly (sometimes it may mean taking a loss). I would not recommend it for your first few deals.

Good luck

Yes, you are correct, L Gale, experience matters when a HML is considering your deal. The ability to ge the deal completed and sold is a big factor. Iniially, it may or may not translate to lower rates, but it will definitely start the relationship off and will evolve to better terms.

In addition, the theme of the above thread, as @Eric Michaels said, is important. The attitude of using someone else's money creating a lower risk is wrong. In fact, I feel that if you are using someone else's money, you should have a higher level of responsibility than when using your own. If you screw up and lose your own money, well, no one is hurt but you. If you screw up using someone else's, you should work your tookus off to get it paid back no matter the circumstances. Almost all HM loans will include a personal guarantee anyway to ensure that's the case.