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I am working on a Daemons of Khorne list for 3000, and I wanted to take 4 units of 5 flesh hounds, until I realized that was $200. So I was looking around, and thinking, Ok ebay, and then I saw the dire wolf.

These guys are the perfect substitute in. They look sort of scary, and for 20 of them you need $50. Is using them a good idea?

Substitutes/conversions are always fine as long as the opponent agrees to it.

The plastic Chaos Hounds from Warriors of Chaos WHFB make for great substitutes.

Sure. They are roughly the same size. And as noted, chaos hounds would work too.

After all, it is still GW minis so no problem. I have seen chaos hounds painted red and they look great.

If you want a collar of khorne, perhaps look them over and a green stuff modification.

Also, the GW Warhammer Dire Wolves from the Vampire Counts army.

I wonder if flesh hounds are the number one proxied unit in all of 40k and whfb?

I've been working on converting a bunch of spare boars from fantasy orc riders into warcraft-esque felboars to use as flesh hounds. Works pretty well, aside from the constant references to Ozzy's Warpigs from opponents.