Many start-out investors must rely on their current fix-up job profits in order to acquire their next project. This is very common! Borrowing for a down payment or to pay off rehab debt makes good sense. What doesn’t make good sense and often happens, investors will borrow the maximum amount they can. All the funds don’t get used for business. But even worse, the payment on the new borrowing turns the property into an alligator. That’s very bad, don’t do it!
For fix-up investors, newly created equity (after fix-up) is a prime source for quick cash. Every investor I’ve ever met needs cash. House fixers are well aware that fixing houses for yourself doesn’t provide a paycheck on Friday night like traditional W-2 jobs. Quite often, house fix-up investors must rely on their newly created equity for grocery store money.
After fix-up, it’s fairly easy to obtain a new loan or another loan to pullout all your cash, which includes the down payment and fix-up funds. In the strict sense, borrowing has little to do with profit-making. It has more to do with increasing your debt. However, it facilitates your forward movement to make profits! Without cash you cannot move forward and your investing would be stopped.