Other people’s money (OPM) is an important concept to learn for real estate investing. For those first starting out in their real estate investing career, OPM may be the only way to get going. Additionally, for seasoned real estate investors, using OPM creates the potential of higher profits through the power of leverage.
How To Find OPM
The first rule to work with OPM is to forget about banks or at least make them far less important when considering deals. Banks typically want excess collateral for the loans that they make.
With an effective OPM strategy, there is less collateral for a typical deal and perhaps no collateral provided by the deal manager who controls the deal.
OPM comes from private investors and hard money lenders. Private investors may come from cultivating them personally. They can also be attracted to a deal using crowdfunding online.
Since the JOBS Act passed in 2012, it has been legal to advertise deals, so seeking OPM is actually now about creating a successful advertising campaign for a real estate project or fund.
OPM Is More Than Just Money
Any asset, which has proven value, can be converted into a cash resource. A classic OPM deal is a contractor/developer who acquires control over land owned by another party. The deal is to improve it, subdivide it, and then sell it at a higher value or use it to for a construction project to increase the value further.
These deals are possible to make by legal written agreement without the contractor/developer committing any money to the deal. Instead of money, the contractor/developer brings expertise, time, and effort as a contribution to the deal.
A three-legged stool is a good analogy for this OPM technique. A stool with two legs will fall over. Adding the third leg is what allows it to stand up securely.
Many types of non-performing assets, which means an asset that has value but does not produce cash flow, cannot be used easily as collateral for a loan. However, an insurance guarantee may be an option to consider.
The three things needed for this type of deal are 1) the asset 2) the lender, and; 3) an insurance guarantee. If the loan goes into default, the insurance company pays off the loan and acquires the asset. Then, the insurance company liquidates the asset to recover its funds.
These deals work when the asset value is very high and the loan desired is very low in comparison to the asset value. The insurance guarantee makes the loan possible.
The Bottom Line…
Consider using OPM as much as possible to potentially improve real estate investing success. Control property, rather than needing to pay cash to own it. Find good deals and advertise the opportunity to get others to contribute cash, then contribute expertise and time to manage the deal to a successful conclusion for all.
Already have other people’s money? Then it’s time to start looking for a deal!
AQRE Home makes finding a good real estate deal easy, with:
- an intuitive property search
- support from experts
- easy offers with the click of a button
- free property management tools that makes being a landlord easy
- zero listing fees!
So, what’s holding you back from investing in real estate now?
Start looking for that perfect property today, on AQRE Home.