When real estate investors ask how to lower their cost of capital, the advice they get is usually the same: negotiate a better rate, improve your credit score, shop around. According to Adam Eldibany, founder of homebldr, that advice works fine for a single deal. It falls short for anyone doing multiple deals a year.
Why the Standard Advice Only Goes So Far
For investors with plenty of cash on hand, Eldibany said the simplest lever is straightforward: borrow less per deal.
“Instead of borrowing 90 percent, you borrow 80 percent,” he said. “Now your loan amount is less, the interest on that loan is less, your fees are going to be less.”
But most investors do not want to reduce leverage. Maximizing what they can borrow is often just as important to them as maximizing profit, since it is what lets them scale. For those investors, the real lever is finding the best financing terms available, which usually means shopping dozens of lenders, a time-consuming task for someone also managing active projects or working outside of real estate. That is where a broker adds value, though the trade-off has traditionally been the same: paying that broker in cash at closing.
Origination Fees: The Part of the Cost Most Investors Ignore
Eldibany argues origination fees deserve just as much attention as interest rates, even though rates get most of the focus because they are easy to compare. The difference comes down to timing. A 1 percent origination fee on a $500,000 loan is $5,000, paid in cash at closing. A 1 percent increase in rate also costs roughly $5,000 over a year, but spread out at about $420 a month, starting after closing.
“If you’re not paying the cash at closing, that helps preserve liquidity and allows you to have more cash available to grow your business,” Eldibany said.
Cash paid upfront is gone immediately. Interest paid over time gives an investor room to generate cash flow from other projects before that cost catches up.
A Fee Structure Play, Not a Rate Play
This is the distinction Eldibany wants active investors doing multiple deals a year to understand.
“It’s not a rate play. It’s a liquidity play,” he said. “Interest rates determine the ongoing cost of borrowing. But our financing subscription changes when and how investors pay for financing.”
Under homebldr’s subscription model, instead of paying origination fees at each closing, investors pay a single fee upfront, one that does not need to be paid in cash. From there, they can close deals for the length of the subscription without additional origination fees.
“Rate shopping helps optimize one transaction. The financing subscription helps optimize every transaction for the next 12 months,” Eldibany said.
For an investor doing one deal a year, chasing the best rate on that single deal still makes sense. For an investor doing several, the more useful question is not what a lender charges on the next deal, but what the total cost of financing looks like across all of them, and when that cost actually has to be paid.
More detail on how the subscription structure works is available on homebldr’s financing subscription page.
About homebldr
homebldr is a technology-driven real estate investment financing platform based in Austin, Texas. Operating on a broker model with a network of more than 80 capital partners, homebldr helps active investors finance fix and flip, new construction, and long-term rental properties, including through a subscription option that eliminates per-deal origination fees.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
Disclosure: Individuals or companies mentioned may have a commercial relationship with KeyCrew.
