"Skin In The Game"

11 Replies

It’s almost unheard of in today’s real estate market for a buyer to be able to borrow all of the money needed and also be able to wrap in all of the loan costs and fees without bringing any money to closing or having any “skin in the game”. 

99.9 out of 100 times the investor will need to bring some money to closing. 


Anticipate the need for some money at closing. Don't expect to be able to wrap all of the closing costs and fees into the loan. Even with a good LTV ratio, the lender is almost always going to ask for some money from the borrower at closing. If you are looking to do a deal without putting any money into it you are probably wasting your time and efforts, at least in working with a hard money lender.


Most lenders require the borrower to have some money into the loan. Whether it's paying for closing costs, loan fees, or making the up difference in the LTV, a borrower should always anticipate the need for some money at closing.

Do you have hard money loan questions or tips? 

Happy Investing! 

-JJ 

also remember it depends on how you are getting started. We lived in our first house turned investment . We bought it wih a va loan. While four plex didn't make sense for us, that is a great way to get started with as little skin in the game as possible.

I totally agree with you in the sense of pure investment. Most people partnering with investors want "some" skin in the game the key is that is not the into way to get started.

We for started with 0 skin in the game while we have had to put as much as 25% down for other properties, using a variety of strategies we have still been able to grow to 7 houses in less than 4 years. 

Remember to think out of the box and there is a lot of ways to skin the cat!

congratulations JJ well done

We are currently using a VA loan for the first time, and we do have to bring some money to the table.

My problem I once we started looking for a place, and found the duplex we are buying, we also found other deals (this real estate thing is like a weird addiction once you start looking. lol)

 I am very much an outside the box thinker, so of course my friends and family think my wife and I are crazy. So we have been limited in finding private money in those resources.

Hard money makes me nervous. So is it worth it?

What other outside the box ideas are out there, when your resources and your funds are limited?

Beat me up! I can take it

@Hattie Dizmond you're right doesn't have to be your own money, get creative!

@Elizabeth Colegrove absolutely agree to think out of the box, great points...

@Mike Baker to answer your question is hard money worth it the answer is it depends. In any investment opportunity it is all about the numbers, right? So if you can make the numbers work for you when doing a hard money loan, because the expenses are higher, then it could be worth it. If the numbers don't work, it is never worth doing in my opinion. If you have any specific questions to get over your nervousness just let me know... 

@Mike Baker

I'll give you a scenario where HML made sense. First, this was a buy & hold investment, so the play was cash flow, not trying to hit the 70% rule for a flip. It was an estate property. Here are the numbers...

$84k purchase price

$30k rental rehab

$135k estimated ARV

$1350/mo estimated rent

The problem was the master bath had been ripped out down to the studs for a remodel that wasn't finished, and multiple outlets and electrical fixtures had been removed and not replaced. The property couldn't pass inspection for underwriting on a conventional mortgage. However, the rehab timeline was only 6-weeks, so there should be a max of 2 months hold time on the hard money loan. That's a winning deal using HML, because the property was still going to hit the monthly cash flow minimums and the CoC return threshold.

As for friends and family thinking you're crazy...it's a large and esteemed club you have joined.  My personal observation is, unless you have a friend or family member who has read and embraced the Rich Dad, Poor Dad cash flow concept, friend and family are the last ones to get it.  "Prophets have no honor in their home town" is a truth.  You will likely have better luck finding private investors who don't know you and are only looking at your investing track record and the quality of the deal.  However, unless you find an actual partner, you may find private money for buy & hold a little difficult to come by, depending on the amount of monthly cash flow and the terms you are offering.

Most private money type investors don't want their capital tied up that long for what would be the return on their portion of the monthly cash flow.  Potential options...

  • Find deals where you can force appreciation through rehab or improvement. Use private money (or HML) to fund the initial purchase and rehab, then refi out of the private money and pay off the investor plus their profit. On a situation like that, you can give the investor the same 12% terms you would an HML, but you don't pay them anything, until the refi occurs. The longer it takes you to refi, the more the investor makes, but they are getting 12% regardless.
  • Use private money to fund flips, a little easier to do than buy & hold, and then use the flips to fund your buy & hold activities.
  • Owner financed properties
  • Sub2 deals/wraps

Get creative and build a track record.  When you start talking in front of family and friends about how you are getting 12% for your investors, people will suddenly think you are a lot less crazy!

Wow @Hattie Dizmond

That is awesome advice.

@Mike Baker listen and follow Hattie if you want a shorter learning curve.

2 books:

How to Finance Any Propery - James Misko

IRA Wealth - Learning SD IRAs - Patrick Rice

you have more eloquence and Precision in your Rei writing than most people that advise here on BiggerPockets

I can always go on vacation and know that you'll do a great job answering these newbies' posts :)

@Hattie Dizmond

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here