Funding Partner Versus a Hard Money Lender

About the author : Dave Dinkel

While this question is not exactly related to a wholesale flip, it’s important to investors doing deals.



  • When investors think of the term “partnership” the immediate thing that comes to mind is that the profit of the deal will be split with a partner, that’s the reason the partner is putting up the money for the rehab or double closing.


  • Unless the investor makes it very clear to his “partner”, before he becomes a partner, the partner may assume a split of 50% of the profit.


  • In a wholesale flip or same-day double closing, the profit could be 5 to 25% of the original purchase price.


  • Let’s assume on a $100,000 wholesale deal the net profit after closing costs is $15,000, so the partner would make $7500 for putting up the $100,000 to close.


  • However, a transactional funder would charge $1000 for the same transaction for a savings of $6500 to the investor.


  • More likely the investor wants to buy and hold the property for rehabbing in which case he should be making at least a $30,000 profit on this type of transaction.


  • Let’s once again assume that his partner will get $15,000 for this transaction assuming he isn’t also charging interest and points on the money.


  • In this situation, if a hard money lender funds the investor, his expense for the money would be about $1000 a month at 12% and $3000, or three points, at the closing for a $100,000 property.


  • The investor would be better off with a hard money lender even if it took him six months to finish the rehab and sell it, for a savings of $15,000 (half of the profit) minus $9000 (the cost of the hard money) which would equal a $6000 net profit in addition to what he was already making.


  • But the investor’s profit is even more dramatic if the rehab profit were more than $30,000.


  • As a general rule, it’s more profitable to use hard money, or a transactional lender, if you’re considering splitting profits to borrow funds.



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If you need hard money instead of transactional funding, contact me for referrals to private hard money lenders.

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About the author : Dave Dinkel