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When To Use Debt v. Equity When Raising Private Money

1,461 views · Published 16 March 2018 · 9:23 · Indexed 4 November 2026

Channel: DeRosa Group · 2018 · Education

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Hey Bigger Pockets!

Today were going to talk about when to use debt versus equity when you're raising private money to fund your real estate deal.  So where to start?

Let's first consider the source of the debt and equity because depending where they come from, they hold certain benefits.

 Let's start with Debt and when to use it.  Debt is better for short term deals, especially if sourced from a Self Directed IRA. (But that's a whole other conversation)

Now if the money is cash, then equity might be a better play.  In this situation cash can hold certain types of write off's like depreciation of the asset being an owner.

The next is timeline.  Debt should be short term and Equity should be a long term.  Short term deals are 6 months to a 1 year like a fix and flip or a brrrr.  It's better to go this route is because the debt will be much cheaper.  It should be short term because by 6 months to a 1 year you should be able to add value by that point. 

For Equity, long term deals are better.  This is the slow and steady approach with terms looking more like 5 - 10 years.  Also, equity should be used on bigger deals.  An example would be the 198 unit apartment that we just purchased.  But let me know what you guys think. Leave me a comment below and let's start a conversation!

As always, please email us any real estate questions to [email protected] and we will answer them on an upcoming episode!

Learn more about The DeRosa Group at http://www.DeRosaGroup.com or on BiggerPockets.com - https://www.biggerpockets.com/renewsblog/author/mattfaircloth/
Matt & Liz, founders of DeRosa Group, were recently second-time guests on the BiggerPockets Podcast. 

Check it out:  https://www.biggerpockets.com/renewsblog/bp-podcast-203-finding-deals-funding-contractors-mentors-matt-liz-faircloth/

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