Without using leverage..

The answer is a BIG-FAT-NOOO for 90% of use cases.

Still couldn’t resist doing this analysis, after my last post on “The Value Distribution”. However in this post I will show that there are some use cases where you want to reduce your leverage for a better return (on slightly higher risk deals). To get full context read my previous post.

As mentioned in the previous post I would still pay every penny to my wholesale and every penny to my GC, but what if I could hypothetically put in all the money I needed for a deal myself and eliminate the lender. I am the first person to say no to this, as you make the best ROI using leverage. If you have talked to me ever about RE, you know my views on this. I am all about responsible leverage. But that also assumes you are able to turn your cash at a higher return than the cost of money. In this deal the APR averaged to 17%. And I had some money on the sideline that was only making 10% return, so…. you know where I am going.

Anyways just as an analysis if I had been able to fully fund the deal myself then the numbers would have been as follows:

Cash out of pocket: $418k

Profit: $45,200 vs $10,500(with HM loan)

Annualized ROI: 18.5% vs 14.4% (with HM loan)

So on the same project, with the exact same effort and all the same complexities, I could have made $35k more (4.5x) at a much higher ROI.. something to ponder about in markets where deals are tight to come by. Ohhh wait.. but did I have $418k on hand to have pulled off the deal. Hell.. no, I didn’t… My lender is invaluable.