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Forums » Rehabbing and House Flipping » Use my money or someone elses in a flip

Use my money or someone elses in a flip

13 posts by 9 users


Rehabber · nashua , nh

Would you use a hard money lender or your own cash to pay for a flip (property + rehab)

I can see advantages to both.

Using your own money you save on the cost of borrowing it and the fees and such hassle of getting it. This seems that the risk factor is alot higher.

Using someone elses money, you pay more to have it but more of your own cash stays in your pocket. This seems that the risk factor may be lower.

What are your thoughts on either.

SFR Investor · Annapolis, Maryland

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.

Real Estate Investor · Ellicott City, Maryland

Why do you believe that using someone else's money is lower risk?

If you don't need the money for anything else, I don't see much value in leveraging flips. The value only comes when you want to do more projects -- or bigger projects -- than you have cash.

Small_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Telephone: 770-906-6358

Rehabber · nashua , nh

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.

Real Estate Investor · Ellicott City, Maryland

Originally posted by Steve S.:
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.

Depending on who you borrow the money from, they may require a personal guaranty, in which case it's your money either way, but fewer loan costs...

Small_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Telephone: 770-906-6358

Real Estate Lender · Chicago, Illinois

@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. :-)

Rehabber · nashua , nh

Just to clarify I have never defaulted on any type of bill and think poorly of those who make it a common practice. With that said.... I did fully intend on using my own cash but was weighing the option of maybe borrowing and was just pondering the + and - of borrowing. I agree with the fact of working my butt off to be successful so everyone wins. I am not planning on losing but nobody does.

As far as caring about the lenders risk, well that is a business too. They are making a pretty hefty ROI if all goes well. If they wanted to play it safe they could just get a money market account at the bank and make 1% interest or less but thats no fun!

SFR Investor · Texas

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?

Rehabber · Santa Clarita, California

@Steve S. - I too am with J and eric on their views - you have no less risk using OPM. One may think (not pointed specifically at you) that they do not have their own money at risk, but in most hard monely loans, they do require you to have some skin in the game, plus, an investor's reputation is very important in this biz so risking your money or that of OPM makes no difference.

To get to your OG question, here is how I see it: When applied responsibly, leverage is one of the greatest aspects of RE, and that goes for flipping too! If you can leverage a lenders funds with some of your own, you increase your COC returns and can do larger or more quantity at once deals. That is one of many things that sets the pros apart from the one and done crew.

Small_be_logoWill Barnard, Barnard Enterprises, Inc.
E-Mail: [email protected]

Rehabber · Chandler, Arizona


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

Small_rezamp_buscard_whiteJustin S., Rezamp, LLC
E-Mail: [email protected]
Telephone: 4806780446
Comp like the MLS. Real-time feed and instant notifications of deals.

Real Estate Investor · Tempe, Arizona

(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.)

This really helps me out with one of my most pressing dilemmas, thank you. I’ll be going full time soon and was curious if I should go with HML’s so I could expand more quickly. I have been leaning towards using my funds and doing one deal at a time for the first year of operation, but the opportunity to work with HML’s has been a nagging thought. I expect using my own cash will help build a stronger base for my business, but will the experience translate to better terms if/when I start to use HML’s?

Hard Money Lender · Tyngsboro, Massachusetts

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.

Small_small_logoAnn Bellamy, Buy Now, LLC
Telephone: 800-418-0081
Hard money lending in NH and MA, and for free networking in MA,

Rehabber · Santa Clarita, California

L Gale - Absoluetely! Experience matters a lot to HML's AND private investors. The better your track record, the better rates and offers you will get. In fact, by using your own money to start, doing one at a time, you create that track record and if you start now marketing to private investors, by the time you are ready to go full time and do multiple projects at once, you will have investors coming to you asking if they can invest in your deals. I say this from experience because that is exactly what happened to me.

Small_be_logoWill Barnard, Barnard Enterprises, Inc.
E-Mail: [email protected]

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