Cash vs Finance

2 Replies

I'm looking at a possible flip and can't decide the best method of financing.  We have some cash in mutual funds and are wondering if it's wise to pull that out and pay cash then finance the remod....Or save the cash and finance 100%. 

@Ethan Bruland how would you finance 100%?  Do you mean through a private lender or hard money?  That would still be considered a cash offer, generally.  And the purpose of offering cash is to make your offer stronger and more appealing to the seller.

If the question is what makes the most sense financially, then you'd have to weigh what you'd be losing on investment gains against what you'd be paying in interest to borrow.  In other words, if your money earns 5% but the money you'd borrow is at 15% interest, then you'd essentially be saving 10% (15% minus 5% gain you'd be losing) by using your own money. 

Originally posted by @Larry T. :

@Ethan Bruland how would you finance 100%?  Do you mean through a private lender or hard money?  That would still be considered a cash offer, generally.  And the purpose of offering cash is to make your offer stronger and more appealing to the seller.

If the question is what makes the most sense financially, then you'd have to weigh what you'd be losing on investment gains against what you'd be paying in interest to borrow.  In other words, if your money earns 5% but the money you'd borrow is at 15% interest, then you'd essentially be saving 10% (15% minus 5% gain you'd be losing) by using your own money. 

We would finance through a bank around 5-6%, so a reasonable interest rate.  We've financed 3 rentals since March, so the debt service is getting overbarring.  If we use the mutal fund cash on the property, we could then borrow against the house for the remod.  Compared to financing the purchase price AND the remod cost.  I'm confident we can increase our return on this flip vs the mutual fund return of 5-10%. 

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