Hard Money vs Cash? Curious on what you guys think.
I think if ROI is a big deal to you I believe you should use hard money. I will like to hear other peoples take on this.
Most lenders require a six month seasoning period if you buy the home in cash vs 3 months seasoning if you buy with hard money. One of the pros in regards to doing a BRRRR/cashout with hard money
I basically agree with you. Your cash-on-cash return will be higher when using debt.
Any form of debt is going to offer both increased risk and the potential to increase cash-on-cash returns.
Debt fundamentally allows you to go faster.
You can buy a property for $1M using $1M of your own equity, or you can put $200k down and buy 5 properties simultaneously using debt - this specific example is reductionist and arbitrary, but the point stands; debt allows you to potentially move a lot faster.
However, it's not without significant risk. If you don't pay a lender back, or if you trip a technical default clause, then the lender can take the property back if there is no immediate remedy (and depending on the level of recourse per the loan documents they may be able to come after your personal assets if they aren't made whole).
If you were to look at it from a mathematical standpoint then yes: higher ROI is better for the investor. However, investors are human and we are subject to emotions. So do what you're comfortable with and have fun with it!
@Quinton Phillips You also have to consider the opportunity cost lost by not utilizing leverage. Your ROI per deal is lower due to the transactional fees and loan interest but using it allows you to do more deals and generate more money in a shorter amount of time. A hybrid strategy is using all cash for it's negotiation power but then immediately using "hard money delayed financing" or hard money cash out (same structure you would have taken as a purchase loan) but that way you free up capital to go out and put another one under contract while you work on the first one.
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if you have unlimited cash, go the cash route. most people do not have that luxury. i think theres just so much to be said about utilizing leverage. sure youre going to pay point and interest, but both of those are deductible right.
i think it goes a long way when you can develop a relationship with a good lender. i know when i did that, i got better rates and closed deals about as quickly as i thought possible.
happy to share other experiences or contacts if it would help!