Whether you’re using your own cash, a hard money loan, business credit, a line of credit, or another source of capital, the cost of that money should be part of the numbers from day one.
The cheapest money isn’t always the best money either. Sometimes having enough available capital to keep the project moving is more important than saving a few points on financing.
I’m big on doing your own due diligence and only leveraging what you can realistically afford.
For the experienced flippers here — how much does the cost of capital affect whether you move forward with a deal?
Investor · Collierville, TN 38017 · Member since 2017 · 685 posts · 491 votes
4d
It affects every deal I do, because I underwrite the all-in cost before I offer.
I buy Memphis houses under $100K, rehab, and hold as Section 8 rentals. My math: purchase + rehab + closing + 6 months of carrying costs + the DSCR loan at 70-80% LTV. If the rent — $1,395 to $1,950 for my 3-bedrooms — doesn't clear the 1% rule and cover the debt service with room, I don't buy. The cost of the money is baked into the offer, not figured out later.
One thing I'd add: expensive money you can actually get beats cheap money that falls through. I've seen investors lose deals waiting on a slightly better rate. I never put earnest money down, so my offers are real — but I only write them when the capital cost is already penciled in.
Know your number before you negotiate. The deal either survives your cost of capital or it doesn't.