Why Hard Money is Better Than Taking on A Partner To Make A Profit

hard money vs business partner

Aren’t the interest rates on hard money loans just ridiculously high? Why would anyone borrow hard money funds rather than take on a partner?

Let’s compare the cost of a hard money loan with taking on a partner. Then you decide what’s a cheaper option.

The first question to ask yourself is, how much of your final profit will a partner take? 35%? 50%? 60%? Let’s say you find a partner that will take 50% of your final profit. You’re better off using a hard money loan rather than use that partner. Here’s why:

  • Hard Money Loan for $100,000: Hard money loan interest rate = 12% annually. On a $100,000 loan you pay loan fees of 3% or $3,000 when the loan closes. Then you pay 1% per month ($1,000 per month) until the house sells. Let’s say it takes you 4 months to fix up and resell a house. The total cost of the money for that 4-month time period is $7,000. ($3,000 in loan fees + $4,000 in interest payments). Let’s say your profit is $23,000 on this flip. After the cost of the hard money loan, you’re left with $16,000 in profit.
  • A Partner loans you $100,000 and takes 50% of your final profit: Let’s say your profit is $23,000 on this flip. After you give your partner 50% of that profit, you’re left with $11,500 in profit. 
  • This is a difference of $4,500 over a 4-month  time frame. Over 6 months it’s a difference of $2,500.

The double digit interest rates charged by hard money lenders may seem high on the surface. But when you compare it with the cost of taking on a partner, it suddenly becomes a better option, doesn’t it?

Get to know all of the hard money lenders that lend in your area on a first name basis, so when the right deals do come along, you can take them down and make a profit! Want to know how you can get started using hard money on your next deal? Reach out to us today and let’s get started!

Leave a Reply

Your email address will not be published. Required fields are marked *

About the author

Corey Curwick Dutton, MBA Park City, Utah - 2005 MBA Graduate with 10 years experience in Business Management including International Management. Corey is a Private Money Lender and Loan Officer. In her spare time Corey enjoys writing on topics in the private money lending industry. She also enjoys hobbies such as mountain biking and skiing in the great outdoors of Utah.