As a direct lender for real estate investors, we are often asked, “Why should I use money from a hard money lender in Atlanta when I have enough money to pay cash?” This is a great question and one that is not intuitive for most people. There are four main reasons why a real estate investor should consider using hard money. In this blog article, we will discuss the financial implications of using a hard money loan and show why the return on investment is higher than paying cash for your real estate investment.
The easiest way to convince a real estate investor of the economic value of a Lima One Capital hard money loan, is to analyze an actual deal that was executed successfully by a Lima One Capital client. Please download the PDF file in order to follow along with us in this article.
On February 21, 2012, our client purchased 1297 Fenway Circle in Decatur, GA, using a hard money loan from Lima One Capital. The purchase price was for $84,900 and the client planned $33,000 worth of construction. See “before” pictures of the house at closing. Our client also had to pay $1500 for closing costs and $1000 for a builder’s risk insurance policy. As you can see in the breakdown, our client would have needed $120,400 in cash to complete this house flip.
Because our clients used a hard money loan from Lima One Capital, they had an additional cost of the lender fee of $3,804 or 4%. But instead of having to put down a total of $120,400, our client only had to put down 20% of purchase and rehab, which totaled $23,780. Our client’s loan totaled $98,924. Our hard money loan allowed our client to keep $92,336 so that she could buy an additional rehab property to flip as well.
As of today, 1297 has had a great rehab as you can see from the “after” pictures below. The property is under contract $191,000 and set to close the middle of June. Our client did a phenomenal job with this house flip. Had our client
paid cash for her entire purchase and rehab, after the realtor fees, she would have made $61,000 profit from the deal. This equates to a ROI of 50%.
Because our client elected to use a Lima One Capital hard money loan, her profit from the deal was less than had she used cash because of our lender fee and monthly interest payments. Her total profit is $53,512; however, because she only put $23,780 down at closing, her ROI was a whopping 191%. If you are seeking these types of returns on your investments, let Lima One Capital be your hard money lender in Atlanta and in South Carolina.
In our next blog article, we will discuss reason #2 for why a real estate investor should use a hard money loan.
Subscribe to our newsletter to receive tips and information for real estate investing.