Down payments are a standard part of private lending. Real estate investors often accept them as a necessary step to finance their rehab projects, focusing more on securing the lowest interest rates. However, the down payment you make significantly impacts your business, leaving you cash poor in a cash-intensive industry.
Here's why private loans with down payments are detrimental to your business, and why opting for a balance sheet lender that doesn’t require them can be a game-changer.
More Working Capital to Invest In More Properties
Even seasoned veterans in the real estate business can feel the strain when all their cash is tied up in down payments. This feeling is justified. With the same amount of cash, you can fund more deals with a lender that doesn't require a down payment. This is known as the multiplier effect.
Imagine using the same cash to close with a private lender selling your loan to Wall Street versus a balance sheet lender that doesn't require a down payment. The latter allows you to close three times as many deals. In this scenario, the rate and points you pay per deal have a smaller impact on your bottom line compared to your ability to close more deals overall.
Cash Reserves for the Unexpected
Unexpected expenses are inevitable in real estate. From HVAC failures post-inspection to mold discoveries mid-rehab and burst pipes after a hard freeze, surprises happen. Even the most experienced investors encounter unforeseen issues after closing. By staying cash-flush, you ensure that you can cover these unexpected costs without being sidelined. Maintaining healthy cash reserves gives you peace of mind and keeps your projects on track.
An Unsullied Rate of Return
Investing less money into deals increases the rate of return on each project. If you measure your success by your rate of return per acquisition or flip, wouldn't you want that rate to be as high as possible? For those serious about maximizing their returns, 100% financing is crucial.
Ignore the Distractions
This is why working with a balance sheet lender not beholden to Wall Street is critical. Understanding your fix-and-flip loan terms beyond just the interest rate can significantly impact your bottom line. Forget the distractions: opting for loans without down payments will make your business more profitable and sustainable.
At Residential Capital Partners, we believe in supporting investors to have a thriving business.. We focus on providing you with the best terms to maximize your investment potential and keep your business thriving.
Say goodbye to down payments.
