When do you want to use hard money for flips? Whenever you’re looking to bring less money to the table or looking to close fast or looking to have more leverage for negotiation. This increases your return on investment (ROI )and getting more of your contracts accepted.
When flipping properties, the name of the game is maximizing ROI and getting in and out. You will come out of pocket with less capital using hard money and close in less than a third of the time it takes for conventional. Not to mention that conventional financing is limited to properties that have little to no issues (retail properties typically sold at retail prices.)
Since you are using private funds when using hard money you have much more flexibility. Hard money doesn’t have the red tape that conventional lenders have and we can make quick decisions in-house. We can close in 7 to 10 days and we’ll loan up to 75% of the after rehab value. With conventional it takes up to 35 days to close and will only loan up to 80% of the purchase price. Hard money is much less out of pocket and a lot less time.
3/2/2 Single Family Home
Purchase Price: $70K
Conventional Financing Numbers:
Loan (80% Purchase Price): $56k
Total Out Of Pocket: $27K
Hard Money Financing Numbers:
Loan (70% ARV): $77K
Total Out Of Pocket: $9K
In this example, you would bring one third the amount to the table with hard money then you would with conventional. Your ROI will be higher and you’ll have more capital to do other deals.
If you haven’t tried hard money for flips then you’re leaving deals on table and you’re ROI is suffering.