HML or my own cash on first flip deal

[Khizar Hanif]

Hey guys, 

I am looking to do my first flip here very soon. I have come across some deals lately with decent numbers in great locations but where I am struggling is deciding whether to use hard money or my own cash. Obviously, a HML will cut tremendously into my profit potential. Assuming ARV and repair estimates are accurate, with high interest (13.99%) and 4 points, net profits don't look enticing with a calculation of a 6 month hold. If the property takes longer than 6 months to sell, I basically lose all profit potential since ill be paying extra interest. I am not considering any areas that have comps with a high number of days on market but I have to expect the worst.

The biggest advantage I see with hard money is that I can eventually do multiple deals at once. So, I am thinking it would be smart to use hard money later in the game as I gain some experience and confidence to where I could do multiple deals simultaneously (with obviously less profit potential on each deal) but not have to tie up cash. 

For my first deal, I am leaning more toward the cash option which would yield me almost 3x as much profit as opposed to using a HML, assuming the numbers are accurate. Is this a good idea? Am I being too greedy and thinking about profits too much as opposed to getting my first flip experience?

The way I see it is that this first deal will be the only flip I focus on, so I'm not concerned about cash reserves. Once it is sold and I see that I can excel in this business, I would use hard money or private money to do more deals and hopefully, more than one at a time. 

Any advice would be appreciated, thanks.

[Nghi Le]

As a flipper, I've borrowed from a dozen different hard money lenders, and I will tell you that I will always use hard money.

Leverage is one reason, but the other is that you have someone watching your back.  If it's your first flip, how do you know if you've done all the due diligence correctly?  As @Jason D. mentioned, a deal that can't work with hard money might not be a deal at all.

I see hard money lenders as my partners. They check out the area, they confirm my ARV, they vet my contractors, they ensure that everything looks good with title, that I have the proper insurance in place, etc. I have had hard money lenders make suggestions to the kind of rehab I should do: "I think you might be over-rehabbing in your area; I don't think you should do hardwood there." And if my hard money lender won't lend on the deal, I'd probably reconsider whether it is a deal.