Take Out A Loan or Use Cash For Renovation

[Nathan Patterson]

I am in the middle of a renovation and had this thought while talking to another investor.  Lets say you have a $35,000 renovation on a property you purchased.  You have the cash in the bank to be able to cover the renovation.  Now would it be better to 

A) use the cash in the bank so that way you can avoid additional loan fees/interest. 

B) take out a loan to cover the renovation so you can keep the cash you have in the bank and use it for the next properties down payment.  

My thought process is that if you take out a loan(personal, business etc) or HELOC, what ever you prefer, you now have the additional costs of interest & making that loan payment on top of the PITI. But you are able to keep the cash that you have in the bank for any surprise costs or any future properties to purchase. So you would be cutting your immediate cash flow down, or even possibly being out of pocket to make that payment. To keep your account viable

But if you pay cash out of your account, then you will save money in the long run by not having that additional interest/loan payment, especially given how interest rates are around 10-15% from what I've seen.  However, now you are out $35,000 & will need to try & save that up for the next property or for any surprise costs or link up other people to use private capital.  

What is everyone's thoughts?  

[Travis Timmons]

Get a line of credit and only break glass in case of emergency. It's there if you get too low on cash, but I'd recommend using your own savings over borrowed funds.

I find that I'm a better investor when I use my cash. It hurts more to spend it, so I get scrappy, do more work on my own, and watch the budget/vendors more. It also mitigates risk because I won't spread myself too thin if I am using my money.