In need of some advice.

[John Byrne]

Hello All, 

I am in need of some advice. My wife and I recently came into a windfall through an inheritance and we are planning on buying a rehabbing distressed properties.  I am a licensed real estate agent and have had my license for almost 10 years so I am very comfortable running comps and finding properties, but I am not sure what the best use of our money would be. We have a little over $200k in cash available to us that we have set aside to begin our flipping business. Properties in the areas where we are focusing typically average around $100,000 before repair value. I am just not sure if it is better to buy our first property with our available cash and fund the rehab with the cash we have available, or if it would be more wise to borrow some of the costs of the properties while only putting out a 30% down payment or so. 

I am really stumped on how to proceed, and I fear if I don't get it figured out soon, we will never begin the journey.

[Bill Hinshaw]

We paid cash on our first one. Our decision was based on a few things: we were undertaking an extensive rehab, we had little experience finding and screening sub cons, and we did not want the time crunch of high interest beating down on us. We knew it was going to take us longer than it should (and it has). For us, it was the right choice.

The biggest negative is that you have a substantial amount of your money tied up in a single project. Depending on your personality, that may cause some stress.

I would also point out that you have 2 huge advantages in the flipping game: access to cheap money (your own) and reduced realtor fees (as your own realtor). Analyze a house with and without those advantages and see how much difference it makes in your profit. It also gives you more margin for error, which will be a big deal on your first one.