OPM = OTHER PEOPLE’S MONEY. This is money which you might borrow from banks, finance companies, insurance companies, friends, etc. It also is that money which YOU might raise in a stock offering or through the sale of limited partnerships to buy real estate.
No matter how YOU raise the money, OPM is MONEY YOU PUT TO WORK TO EARN MORE MONEY. Today people don’t boast about how much money they have-instead they boast about how much they owe! No longer is it a shame or a disgrace to owe money. In this modern age, the more you owe to others for business and property deals, the bigger your position in the world!
You must have heard the saying that ‘you’ve got to have money to make money’. What you need is other peoples money to get rich. The famous 17th century author, John Ray rightly wrote “Money begets money.” It is OPM that creates the financial leverage.
One of the greatest advantages of real estate investing is the power of leveraging other people’s money or OPM. In real estate investing we buy real estate with 10% or 20% down and yet we control100% of the property. When a property appreciates, it will appreciate on the total value of the property and not on the initial investment amount. This can increase returns many fold.
By using Nothing Down techniques you can use the ultimate leverage of OPM of buying property with little or no money down. Thousands of people have become millionaires by using the power of financial leverage in real estate investment.
Your goal is to not use your own cash. The most successful real estate investors use OPM (Other Peoples Money). Keep this in mind as you start to invest. You must hold on to your funds to meet any contingencies. Use OPM to buy as many properties you can that can be supported by your cash flow.
Why use your own money when so many people and businesses are willing to let you use theirs? Banks, institutions and private investors are willing to give loans for real estate investments because property is tangible, fixed and a secure asset. But before you run to the bank to borrow heaps of money you should understand how leveraging works.
Real estate OPM can come from a variety of sources with the most common being a bank. There are also individual investors or groups of investors looking to fund real estate purchases in order to get a steady stream of income. Getting equity partners is a great way of funding when the returns along with the risk are high which a normal bank will not fund.
Retirement plans and insurance funds are a great source of real estate investment funds.Many people don’t even know they can use their retirement plans funds to invest in real estate. Most people forget they even have money in a retirement account once it is stashed away. Dead equity in your residential house can be used to fund your investment properties.
Many real estate investors think that money (or lack of money) is what stops them from buying real estate. This is not true. It is a myth that holds many investors back. Understand that money is NEVER an issue. IF the deal is right, the money will come. Simply think creatively, go to the right source of funds and simply ask for money. The worst that can happen is you get a “NO”. Each no only places you closer to a “YES”.
You will be surprised to find how many banks, institutions and individuals are willing to fund your real estate investments. Just look for them in the news papers or do a search on the internet. Find a good mortgage broker. Write to the lenders and meet them with your proposal. Try and understand the lending criteria. Money is never an issue when it comes to a good investment property.
Every lender is different and have different lending criteria’s. You have to be creative and customize your proposal to the specific “hot buttons” for each funding source.
Owner or vendor financing can be a great source of OPM. When you find motivated sellers, they will be open to many of your suggestions. By listening carefully to the seller’s stated needs you can custom tailor a solution that meets those needs. If you can find a solution to their problem it will make them happy and they will be able to leave some money in for you.
Vendor financing is nothing more than the owner being willing to act as a finance company or bank in a real estate transaction. Instead of you going to a mortgage company and filling out a lengthy application form many sellers will be willing to play the part of the bank if you are able to solve their problem and give them the required confidence.
Credit cards are a great source of short term funding for real estate investors.If used judiciously they give access of up to 50 days interest free financing. Pay off your balance every month and you have access Other Peoples Money. This money can be used for down payments and quick do ups before either flipping the property or refinancing the property for no money down deals.
Tenants form a useful part of OPM strategy. If you invest correctly, your tenants pay 100% of all expenses, including the mortgage, with true passive income left over for you each month. Since the real estate correction started, getting positive cash flow property has never been easier. Tenants maximize OPM and maximize your wealth!
Before using other people’s money (OPM) to increases your real estate investing power you have to first build good credit relationships, prove to be trustworthy in your past credit dealings, and have a good FICO credit score. When you use OPM you must calculate how you’re going to repay the individual or institution who loaned you the money. Remember using other people’s money has been the way many honest poor men have become rich.
It is important for you to protect your self from claims against you when you are using OPM. This is because at times things go wrong in spite of your best intentions and commitment. You have to set up right legal structures before you start your real estate investment plan. As long as you are operating as a corporation the debt is assigned to your business and debtors can make no personal claims against you. Any prudent real estate investor will separate all their business activities from their personal assets by incorporating proper structures at the onset.
Using Other Peoples Money correctly gives you a chance to building enormous wealth quickly. All you need is to have a great investment property to match the money you borrow and you’re off on a glorious road to creating wealth. The other advantages of OPM are:
*Having money makes you work harder and you will have a greater chance to hit it big.
*With money in hand you can concentrate on the real estate aspects of each deal, improving your chances of success.
*Money in the bank, even borrowed funds, gives you more confidence so you work relaxed and close more big deals.
*Cash on hand can help you to obtain large discounts on cash offers.
*Having money readily available allows you to buy property at a discount while your competitors are fumbling around to find the needed cash.
*Lastly, with cash in your hands, people chase you for deals. This gives you independence, freedom of action, and the ability to make the best deals for yourself.
Never overlook the importance of having money in your pocket even if it is OPM. It may seem silly but it’s true. OPM can put you in a money-making state of mind. You can earn more because you have more!