Investor Loan Education
Using Leverage to Maximize Your Real Estate Investing Capital
There is more than one way to fund an investment property. This page compares paying entirely with personal cash against strategically using real estate investment financing — including the tradeoffs on both sides.
Two Approaches
Personal Capital vs. Investor Financing
Neither approach is automatically better. The right choice depends on how much liquidity you want to preserve, how many projects you intend to run, and how financing costs affect the specific deal in front of you.
Using Your Own Capital
Advantages
- No lender interest
- No loan origination fees
- No financing payments
Tradeoffs
- Significant personal capital tied into each property
- Less liquidity available for additional projects
- May limit the number of simultaneous investments
- Capital remains concentrated in one project
Using Investor Financing
Potential advantages
- Preserve personal liquidity
- Deploy capital into multiple investment opportunities
- Finance acquisition and potentially renovation expenses
- Increase transaction volume
- Potentially improve return on cash deployed
Tradeoffs
- Interest expense
- Loan fees
- Carrying costs
- Underwriting requirements
- Financing risk must be incorporated into the project analysis
Illustrative Example
All-Cash Investment vs. Financed Investment
A simplified side-by-side of how the same project can look depending on how it is funded. The figures below are invented for illustration only.
| Field | All-Cash Investment | Financed Investment |
|---|---|---|
| Purchase Price | $300,000 | $300,000 |
| Rehab Budget | $50,000 | $50,000 |
| Financing Costs | $0 | $19,500 |
| Cash Invested | $350,000 | $52,500 |
| Estimated Exit Price | $400,000 | $400,000 |
| Estimated Profit | $50,000 | $30,500 |
| Return on Cash Invested | 14.3% | 58.1% |
For educational purposes only. This illustration does not represent guaranteed returns, actual WJR Equity Lending loan terms, or a commitment to lend. No specific rate of return should be considered typical. Unfamiliar terms are defined in the lending glossary.
An interactive version of this comparison may be added to the investor tools section in the future.
Where Financing Fits
Match the Structure to the Project
Leverage is only useful when it fits the business plan attached to the property.
Acquisition and renovation
Short-term financing is generally used when a property is being purchased and improved before a sale or refinance.
Fix & Flip FinancingRental stabilization
Once a property is rented and stabilized, investors often evaluate longer-term rental property financing.
DSCR FinancingDevelopment
Ground-up projects are financed around plans, permits, budgets and a phased draw schedule.
Ground-Up ConstructionHave a Deal?
Send WJR Equity Lending the property, the numbers and your intended exit, and the scenario can be reviewed.
Submit Your DealWorking on a deal?
WJR Equity Lending can review your financing scenario and discuss what options may be available for the property, project and exit strategy.