Private money and/or hard money loans

[Bryan L.]

I've been rehabbing and investing for about 10 years now. In that time I've bought about 35 properties, mostly single family but a few multies (and there were a few years when I didn't buy anything). I still own about 1/2 of what I've bought, but I'm wanting to focus more on rehabbing and flipping next year. I can currently do 3 rehabs at a time with my own money/lines-of-credit, and I'm looking to move that up to 4 of 5 at a time. I've talked with some potential money partners, and if we do a 50/50 split of profits (partner puts up the money and I find the deals, manage the rehab, get it sold), well that's an option I guess. But I'm wondering if private money, or even hard-money would be cheaper than the equity split. A very typical deal for me looks like the following:

Purchase for 30 - 35,

Rehab for 10 - 20

All-in around 50

ARV = 80

So, how much would I typically be giving up with hard-money? I have great credit, but DTI is getting to the point that traditional banks won't loan any more. From what I've seen, the typical fees run something like:

Up-front points 4-6%

Interest 8 - 16%

What other costs? Appraisal? Title Search? Title Insurance? or are these included in the 4-6% at closing?

I'm trying to see how hard-money would compare to the equity split that my potential partners are asking for.

If I'm all-in at 50k and I can borrow all of that up-front with hard-money, I've got maybe $3000 in points. If I fix and flip in 6 months, my interest cost would be another $3000 if the rate was 12%. If appraisal, title search, title insurance are also required, that will add another $1000 (yes, I can get all 3 of these done in my area for $1000 total-combined). So, my total cost to fund the deal would be $7000? Am I missing something?

On the other hand, if I have a money partner and they want 50% of the profits, that would be $10,000 on a $20,000 profit deal. Hard-money seems cheaper.

[Bryan L.]

Thanks for all of the feedback and replies. It looks like the consensus is that hard money (or private money) would generally be cheaper than doing a 50/50 profit split. My goal for 2014 is to start out using OPM and let my credit settle down so that I can get some of my credit lines extended. I have great credit, but the banks don't like my DTI. I currently have a HELOC with plenty more equity to tap into, but they won't increase the limit at this time. If I can ever get that limit increased, that would be the cheapest money. Thanks again.