Should I Use Cash or Take a Hard Money Loan for My First Investment?

Question

Hey everyone,

My name is Hadar Cohen, and I'm a new foreign real estate investor.
I recently received a loan of $120,000 in my home country at a 6% interest rate, giving me the full amount needed to purchase a property in the U.S.

I understand that it’s common practice to finance a property by taking out an 80% loan from a hard money lender at around 11% interest. I also know that this strategy is often used to leverage available cash for multiple deals.

However, as a new investor, I've decided to focus on purchasing one property at a time and go through the learning process until I complete a refinance.
Only after receiving the funds from the bank would I consider rolling into another deal or multiple deals.

In this situation, do you think it's better to still take the 80% loan from a hard money lender, or should I use the cash I have and purchase the property outright?
If you believe I should take the loan, I would appreciate hearing why.

Thanks,  Hadar

Peter Hoff · Answer

Great question Hadar, Here is my two cents on the matter.  You never know what life will bring.  I never recommend to my clients to use their own money to finance 100% of any deal, here is why: 1. Using more of your own money decreases your liquidity, making it harder to qualify for a future loan.  It ties up your liquid assets into a property, slowing down your ability to grow/scale. 2. Going with a hard money loan allows you to know the money is there for you to complete your project and you will not run out of money halfway through. Use a lender's money to make yourself more money.  3. I am usually able to offer my clients 90% on a hard money loan.  This keeps them as liquid as possible.  They communicate with a general contractor so they are confident in what their rehab cost will be.  And they talk with a real estate agent so they are confident in what to expect with the ARV.  Using this strategy when it comes to financing keeps as much money in your pocket as possible.

Griffin Malcolm · Answer

First one with all cash would be awesome if you can swing it. That way you're avoiding all the bank fees on the loan and keep more money in your pocket. You wouldn't have to deal with any construction holdbacks / reimbursements which is nice. I just finished my first BRRRR and that process was a little annoying with creating the scope of work, capturing and uploading receipts, getting a wire to cover the costs, etc. Granted, it forced me to keep track of everything, which was cool, but it was tedious.

All that to say I think cash would be great for you. Then once you have some proof of work you can bring that to private lenders to try and scale faster. That's what I'm trying to do now

Mike Fingleton · Answer

Hi Hadar,

When it comes to your first property investment, I would personally go the cash route. It’s an ideal approach if you’re focused on minimizing risk and maximizing control over your investment. Here’s why:

• Complete Control and Lower Risk: With a cash purchase, you eliminate many of the complexities that can come with loans, such as interest rates, appraisals, and financing contingencies. These variables can cause deals to fall through or add unnecessary stress to your project—something you don’t want to experience as a new investor.
• 
• Better Negotiating Position: Cash is king in real estate. Sellers view cash offers as more reliable, which often leads to a smoother transaction.  
• 
• No Interest or Loan Fees: Hard money loans typically come with high interest rates and additional costs that can quickly eat into your profits. With cash, you keep more of your return and maintain a simpler cost structure.
• 
• Greater Flexibility: When you own a property outright, you’re not bound by monthly payments or lender-imposed deadlines. This allows you to hold the property longer if necessary, wait for market conditions to improve, or even refinance down the road if you want to pull out equity for another investment.

I had a friend who was in a similar position a couple of years ago. He had cash saved up for his first investment but was tempted to use a loan to “stretch” his money. After weighing the pros and cons, he went with a cash purchase. It turned out to be the right move because he encountered a few unexpected repair issues that would have made monthly payments stressful. Owning the property outright allowed him to address those costs comfortably and even negotiate a better deal on materials since he wasn’t rushing to meet a lenders timeline.

Given that you want to learn and scale gradually, cash is a safer way to build your confidnece and investment foundation. Once you have a few successful deals under your belt, you can explore leveraging options like hard money to scale your portfolio more aggressively.

Good luck with your investment journey! If you need more help or want to run through any specific numbers, feel free to reach out.Jasper, the Pat Aboukhaled investor team,Turning investment visions into reality in Phoenix, AZ - ranked #1 for residential real estate growth and opportunity by PwC.

Mike Klarman · Answer

There's pluses and minuses to each choice....

For Financing, the HML here in the states always drop and restart their Foreign National Programs.  I have lots of Israeli clients and Canadians.  The ones I have grandfathered in, I can get funded no problem, but a new Foreign Investor is a tough placement right now.  Even if the program was found for you, you can expect the leverage not to be 80% - probably 70% or even 65% and the rate will be north of 12%.  There's a good chance that financing a fix n flip would still require 60k liquidity or so because the value of the house would need to be at a certain level.  No one will fund a 40k purchase with a 60k rehab.  Too small.  You'd need to get into something for 100k and put 60k - 75k in.

Using your cash, there's no limitations here except what you have 120k.  But if you wanted to do an entire project with cash, I'd say you'd not want the entire project cost (purchase + rehab) to exceed 100k so your choice in projects is much more limited and also now if something goes wrong like the GC sucks or the market crashes, you are leveraged out 85% of your entire bankroll.

Also be very careful of the Cleveland market, it fluctuates.  You can start a fix n flip at one value and when you go to sell it can be 20% less.  Too volatile for me.

Cameron Green · Answer

Hi Hadar,

In your case, since you're new to real estate investing and want to focus on one property at a time, I would recommend purchasing the property outright with the $120,000 you already have. Here’s why:

• No High Interest: Hard money loans come with high interest rates (around 11%), which could eat into your profits as a new investor. Since you already have the cash, you can avoid that added cost.
• Lower Risk: By purchasing outright, you're minimizing your risk and giving yourself time to learn the process without the pressure of loan payments and short-term financing deadlines.
• Better Refinancing Terms: After you purchase and stabilize the property, you can refinance it with a traditional lender at a lower rate and pull cash out for your next investment.

This approach keeps things simple and allows you to focus on learning without the complications of high-interest debt.

Let me know if you need more advice!

Julia Lyrberg · Answer

Hi Hadar, as others have mentioned, if you have the finances, purchasing your first investment property with cash could be a better option. You can rent it out, stabilize it to maximize cash flow, and then consider a cash-out refinance when you're ready to buy your next property!

Matt Moore · Answer

Hadar

That is a great question.  In my opinion, the short answer is to use your cash and refinance it into a 'standard' loan if you are going to rent it or sell it when you are done.  A hard money loan is designed to be short-term, and you must refinance or sell anyway.  No point in giving up 11% interest and fees.  Additionally, you may find that the pressure of the hard money loan will cause you to go faster and make poor decisions, or life could happen, and you could be delayed in completing the rehab.

By the way, I did exactly the above on my first and it paid off.  I was doing 80% of the rehab myself because it was my first one, and I broke my ankle about 75% through.  I couldn't do anything for more than three months.  A hard money loan would have created serious challenges for me.

I ended up financing the home, and by the time I did, the market had appreciated, and the rehab added value. My loan was more than my total cost.

Good Luck.

Matt

Greg Kasmer · Answer

@Hadar Cohen - I would agree with Matt. For the first deal I would suggest using your own funds rather than going hard money. I would also consider "private money" from friends and family for your first deal as well - maybe offer 8-10% simple interest and see if anyone would be interested. Once you do 1-2 deals you'll have some experiences and be more "lendable" to hard money lenders and have the potential to get better terms on the loan. Additionally, you'll have business income showing up and might qualify for some business lines of credit to tap into as well. Then you'll have a few tools for capital at your disposal, including: personal funds, hard money, private money, and lines of credit... all there for you to grow/scale! Good Luck!

Hadar Cohen · Answer

Thank you so much to all the wonderful people who responded to my question. I truly appreciate the time and knowledge you shared; your answers were incredibly helpful. I look forward to staying in touch in the near future. Again, many thanks!

Should I Use Cash or Take a Hard Money Loan for My First Investment?

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