Rehab Using Cash Vs OPM

[Michael J.]

From most people I have talked to, and what I have read, most people that rehab for a living use OPM most of the time or a combination of the OPM and cash. I get the point of if you can invest your cash for a greater return then its cheaper to use OPM to rehab houses and obviously if you rehab more than you have cash to support OPM is the only way to go.

In my area using OPM usually ends up costing about 20% after figuring in the points, fees and interest which is pretty normal from what I can see, at least for those that dont have a good long term relationship with a lender that gives them better rates. So if I had cash to rehab a property and to keep it simple lets say I can turn it over three times a year one right after the other (every 4 months) and the total cost for points, fees, interest is 20% over the year then wouldn't I be better off using my own cash unless...

1. I have more deals than my cash can support
2. I can invest the cash somewhere else for more than a 20% return

If the cost of borrowing is higher than what I can make investing the cash then what is the main benefit of using OPM over cash?

[J Scott]

If you are paying 20%+ to borrow, I would use all your cash first before you ever considered borrowing money.  In today's market, 20% could eat most of your profit, so getting your cost of money down will make a big difference to your bottom line.