Hard Money or Equity Partner

[Moshe Eisenberg]

Hi guys, I'm in contact on a rehab deal and I'm contemplating if I should go with hard money or rather with an equity partner. The basics of the deal is 100k purchase price. 25k rehab. 180 ARV. This should be aprox 45k profit before cost of capital. If I have an 50/50 equity partner I would be giving away around 22.5k. If I go with hard money and wait 6 months to sell the property it will cost around 12k (this is based on 3 points, plus 12 apr which is high). If it takes up to a year it will be around 20k. Based on the #s it looks like hard money is the better option but I'd love to hear from folks with experience what else should go into this decision. Appreciatively yours.

[Kyle B.]

@Moshe Eisenberg, it essentially is a risk/reward tradeoff. Yes, if all goes according to plan, you will make more money taking out a loan and retaining 100 equity stake. However, you are taking on more risk. If the deal goes south, then your lender is going to recoup his/her money before you see any of your investment back. If a deal goes south in a 50/50 equity partnership, you both take equal hits on your investment. If you have both options available to you, then you are going to have to weigh these pros/cons.

With that being said, I prefer to use a private loan on my rehabs (I have never used official "hard money") if I have both options available to me. If you're confident the deal is going to make money, no reason to give equity away if you have other options.