You Are Exposed
As you do more and more real estate investment transactions with your own money, you begin to run into a few problems. One of the major issues for most investors is being over exposed. If you are an investor that has $150,000 in a bank account and your average sized flip puts you out of pocket between $120,000 to $150,000 then you know what it is like to sweat. You are most likely losing sleep while that property is still on the market just waiting for an offer. The reason you are stressed out is not because of the deal itself, but because that $150,000 that took you 10-15 years to save is now all tied up in a piece of real estate. After you do enough deals like this, lose enough hair and enough sleep, you start to look for alternatives. You know that you are confident in your ability to find good deals and perform on the construction, so why endure so much stress if you don't have to. If you have a good local hard money lender, there should be multiple solutions.
The first concept to address is leverage. Most hard money lenders offer a 5:1 leverage on your money. This means, the same deal that you were out of pocket $150,000 on would only be out of pocket roughly $30,000. At this point you still have access to your other $120,000 sitting safely in your bank account. For investors that like to do one deal at a time this works.
The second concept is sizing up your operation. For the more aggressive investors, they also now have the ability to do multiple deals at once. Their $150,000 is worth 5x that amount in buying power. That means they could have $750,000 in real estate deals operating at any given moment.
As each investor grows their business, aligning themselves with different sources of money becomes more and more important. It is good to start those relationships before you need them so when you do need them, you know everything is in line.
Ian Walsh
215.839.3271
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