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How to Use OPM (Other People’s Money)

How to Use OPM(Other People’s Money)

Who likes money? We’re sure you are raising your hand screaming, “I DO!” We like money and lots of it. Especially when our money goes out and makes more! Investing is the number one way to achieve this. Money can be used in different ways when you are working in the real estate industry. For example, it can be used to purchase homes, to hire a real estate agent, or to cover other costs associated with the sale or purchase of a home. This is the standard way of answering this question. What if you were told that there are many ways to use money in real estate that you have not even considered? You may have a nest egg or liquid cash to buy a property with no financing. Great! What if you knew that most successful investors like to keep their cash in their pocket and use OPM? That’s right, Other People’s Money. A term used in reference to financial leverage/strategies that can be used by individuals and corporations. Of course, it comes with a cost. Interest rates, maybe an origination fee, hard money lender fee, and so on. There is usually always a cost to borrowing money, and that’s ok! As long as your return on investment (ROI) outweighs your cost. In this article we will take a glance at different ways to use money, especially using OPM.

Here are some examples of different ways to use OPM.

  1. Credit Cards
  2. Peer to Peer Lending
  3. Unsecured Personal Loans
  4. Hard Money Lenders
  5. Joint Venture Partnerships
  6. Private Lenders
  7. Owner Finance
  8. Investor Capital
  9. Conventional Bank Financing
  10. Bank of Love. A wealthy family member or friend.

When you find a deal, and need capital, which OPM method would you use? First, look at what type of deal and/or strategy you are using and how much capital is needed. Once you have the amount in mind now you can choose how you are going to leverage.

Let’s talk about credit cards, peer-to-peer lenders and unsecured personal loans. These examples of OPM are a quick and easy way of getting your deal funded. What is the one thing they have in common? You guessed it, potentially high interest fees. We say potentially because it is all determined by your credit profile. Everyone’s different. Now don’t let that scare you. Depending on the deal, you might need fast money to get the maximum return on your investment.

With credit cards you have the ability to access the funds with a cash advance check offer. Please check all the terms and conditions with your credit card provider to know exactly what they are, and how much is allowed to withdraw, before proceeding. With the cash in hand, you can use it however it best fits your deal. For example, you live in an area where you found a fix and flip property for $30,000 and used the credit card cash withdraw. The total repairs come to $10,000 which equals $40,000 in your total investment. You’re thinking oh my, the interest on this will be insane! You have done your homework on the property by running all your numbers before you signed the contract to buy and know you can sell it for $60,000. You sell within 6-12 months and make a $20,000 return! Not bad for quick money.

You can do the same with peer-to-peer loans. Peer-to-peer lending, also known as P2P lending. This is the practice of lending money to individuals or businesses through an online service that matches lenders with borrowers. It has a quick, easy application to see how much you qualify for. When using P2P or any personal loans or credit cards, look for unsecured loans. Meaning they are not backed by an asset and based solely on your credit profile. An example of a secured loan is a car loan, the car is the collateral due to the fact that it can be repossessed if the loan is not paid. Same with a mortgage. The house is the collateral to the loan and the bank has the right to start foreclosure if the note is not paid by their terms agreed upon.

Fixed interest rates are important as well when investing, that way you know your monthly payment is the same steady amount during the term of the loan.

What about hard money loans? Hard money is fast cash, non-conventional or private financing with private funds. Since hard money loans are not backed by governmental safeguards, the stringent guidelines and documentation required are absent.

Why Are Hard Money Loans Originated? Usually due to difficulty funding properties such as vacant land and rehab properties, or credit problems - poor credit history or poor FICO score.

Advantages of Working with Hard Money Lenders

  • Quick response
  • Quick closings (one to two weeks)
  • Short-form appraisals usually accepted
  • Flexible loan structures
  • Minimal documentation

This option tends to have a higher interest rate. As always, discuss with the hard money lender of your choice to see what terms they have.

Any way you decide to leverage a deal, know that there are multiple ways to use OPM or creative financing. From joint venture partnerships to conventional or personal loans. Hard money lenders to the bank of love. We can teach you all these strategies and more! It’s about perseverance and proper education. You can do anything you put your mind to! Let us show you the way to leverage your deals and make the most on your return.

Remember… It’s not about the cost of money, it’s about the return!

Areas of Review

Takeaway

Big picture takeaway points

  1. Understanding there are more options to using money than a lot of people know.
  2. Knowing and understanding how to leverage your deals.
  3. Using other people's money can put more money in your pocket.

Reflection

Self-reflection questions to think more about the content

  1. What does my credit profile look like? How can I utilize it in my deals?
  2. Have I asked other investors how they use OPM in their deals?
  3. Which OPM tools can I use right now?

Legacy’s Building Wealth Club offers you the financial education needed to pursue your goals. Let our education and experience lead the way!

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