Newbie from Seattle

[David Truong]

Hey all,

I'm a newbie investor from Seattle, WA and have been lurking, reading, researching on here for a few months. I'm a former engineer looking for a career change and I've decided to go head into REI. My plan is to get into flips and eventually rentals. I've had some experience with my primary residence in "house hacking" and assisting with family rentals. I've been looking into buying foreclosures at the court house steps through a company for my initial flips. Still running a lot of analysis and research of the numbers to see if they're good deals for me or not.

This site is great. I've learned so much from the articles, posts and podcasts, and hope to meet other investors here. 

One question I have is: I've read a lot about investing with no and low money using other people's money (hard, private, etc), but what are the advantages of it compared to using some of your own money to help reduce the interest, profit sharing, etc. so in the end there's more profit in my pockets?

[Nghi Le]

Welcome to BiggerPockets, @David Truong !

You're doing something very similar to me, both in your career and your goals for REI. I'm an IT Engineering Consultant (in the Data & Analytics space) looking to make a full-time switch to real estate, and the auctions are one of the places I look to get my deals.

More to Zach's point, you can do more deals if you have more money.  If you restrict yourself to only using the money you have in your pockets, then you have a limited supply of money, which not only prevents you from doing deals, but also gives you a slower growth rate in your business (how fast do you want to get out of your career?).  If you use other people's money (OPM), you have potentially an unlimited supply of money.

One note about hard money lenders is that, although they do charge a lot of points, they also double-check your work.  They do their own due diligence on the deal and actually check out the property and the numbers.  I mean, if a hard money lender is saying no to you, then that deal is probably not a deal.  Some hard money lenders can also be more involved if you want them to be, providing mentorship throughout the entire process from acquisition to sale.

Ultimately, there are more fees when you borrow money, but 30-50% of multiple deals (depending on your fees and profit sharing) is usually better than 100% of one deal. When I look at a flipping investment, I look more towards the Cash-on-Cash (CoC) return than the actually profit amount itself.