The Big Picture For OPM In Real Estate:
Leveraging Other People’s Money (OPM) can help you scale your portfolio, reduce risk, and create mutually beneficial opportunities. Building relationships with friends and family is a valuable source of OPM, requiring effective communication and trust-building. Strategic approaches, such as laying the groundwork, leveraging networks, preparation, and brand building, can ensure successful OPM utilization in real estate investment. Leveraging Other People’s Money (OPM) can help you scale your portfolio, reduce risk, and create mutually beneficial opportunities. Building relationships with friends and family is a valuable source of OPM, requiring effective communication and trust-building. Strategic approaches, such as laying the groundwork, leveraging networks, preparation, and brand building, can ensure successful OPM utilization in real estate investment. Disclaimer The information provided on this website is for general informational purposes only and should not be construed as legal, financial, or investment advice. Always consult a licensed real estate consultant and/or financial advisor about your investment decisions. Real estate investing involves risks; past performance does not indicate future results. We make no representations or warranties about the accuracy or reliability of the information provided. Our articles may have affiliate links. If you click on an affiliate link, the affiliate may compensate our website at no cost to you. You can view our Privacy Policy for more information. I remember the first time someone floated the idea of OPM (other people’s money) to me as a way to do more and bigger real estate deals. “Take other people’s money? No way. I’d much rather do deals on my own,” I thought to myself. At the time, I figured that taking other people’s money was too much of a hassle, too much of a responsibility, and a constraint to my freedom to pursue the deals that I wanted when I wanted. I could just figure out how to scrape together the down payment for the property on my own. It wasn’t until years later, when I opened myself up to the possibility of OPM, that I was able to not only scale my own portfolio exponentially but also help others build meaningful wealth for themselves. In this article, we’ll dive into what OPM is, my own journey to leveraging OPM, why you might consider pursuing OPM as a way to finance your real estate deals, and how to get started. What Is OPM In Real Estate Investing? At the most basic level, OPM refers to “other people’s money.” In real estate, OPM means exactly what it says on the tin: you ask other people to finance your real estate investments. OPM can be a huge factor in helping you scale your overall portfolio or real estate business. Unlike stocks and other types of investments, real estate doesn’t require you to fund 100% of the investment upfront or with your own money. Leverage is one of the biggest benefits of investing in real estate. Real estate gives you the unique opportunity to seek out creative financing through one or multiple sources. And this is where OPM comes in. OPM allows you to legally leverage other people’s money to buy real estate, which means that you can limit the amount of your own money that you’re putting into a deal. This allows you to acquire more properties in a shorter amount of time, limit your own risk in each deal, and also provide a win-win solution to help others get a piece of the pie, too. Potential Sources For OPM There are many different ways you can use OPM for real estate investing , but some of the more common avenues include: Source Description Private money from friends and family Financial support from personal connections Hard money loans Short-term loans for house flipping and other short-term projects Portfolio loans Non-bank mortgages designed for long-term investments Seller financing Financing arranged directly with the property seller To check today’s hard money and long-term portfolio loan terms, compare investment property lenders at a glance with our loan charts. This article will focus primarily on raising private capital from friends and family. However, when it comes to financing a real estate deal, once you open yourself up to the possibility of OPM, the sky’s the limit with creative solutions. For example, I know Brian (of SparkRental fame) financed a rental property entirely with credit cards once, including both purchase and renovations. I’ve also seen investors combine a first mortgage loan with a seller-held second mortgage, to invest with no money down. Or, for that matter, pull the down payment from unsecured business lines of credit or credit cards. The case studies to invest with other people’s money are endless. Some lenders will forego a down payment in exchange for adding a second property to the loan as collateral. Get creative! My Journey To Leveraging OPM Early in my real estate investing journey, I put up a wall to leveraging OPM, largely because I didn’t want to deal with the additional hassle and risk of bringing on multiple investors and being responsible for their money. So, I continued doing my own deals with my own money (back then, I was focused on duplexes and fourplexes). Soon enough, however, I was tapped out and had to focus on saving up more money in order to be able to acquire more properties. But here’s the thing. Just because my money ran out doesn’t mean my passion for real estate stopped cold. Rather, every time I’d get together with friends and family, it was all I could do to talk about my real estate ventures – the assets I’d acquired, the markets I was looking into, and on and on. Every time, my friends and family would hang on to my every word, imploring me to teach them how to do it, too. “Sure thing! Pull up a chair,” I’d say. Then, I’d take them through the steps – researching markets, talking with brokers, underwriting potential deals, and so on. I lost count of how many sets of eyes glazed over before me. “Oh, no, no, no,” they’d say. “I don’t want to do all that work. I just have some money to put into real estate. Could you just invest it for me?” After enough of these conversations, I realized that I knew more than a handful of people who all had the same problem – they wanted to invest in real estate, but they didn’t want to do the work. If I could get beyond my own need for control and certainty, I would have the opportunity to help all these people build meaningful wealth for their families. Is OPM Right For You? If you’re reading this, I’m willing to bet that the real estate bug has probably bitten you. Whether you’re new to real estate or have built up a sizable portfolio, you love the thrill of the hunt for new markets and properties, and you’re itching to continue expanding. However, perhaps you’re tapped out just like I was or want to pursue bigger deals. Maybe you’re unsure about taking other people’s money but love real estate. You want to expand your own portfolio and help others build wealth, too. This is where OPM comes in. By leveraging OPM, you can create a win-win solution for you and those around you who want to invest in real estate but without the hassles of being a landlord. If you’re passionate about doing real estate deals and want to help others grow their wealth by investing passively in real estate while you do all the heavy lifting, then OPM could be the right strategy for you. That being said, before committing to this path, it’s important to take stock of your skill sets and interests. Within the real estate industry, every investor has their own talents and expertise. Some are Excel wizards that thrive at underwriting even the most complex deals. Others love networking with brokers and finding that next hidden gem. Others still love talking to people and teaching them about these opportunities. To be successful with OPM, you must be willing to focus on your people skills and be open to talking with people about money. It might seem uncomfortable at first, but if you’re open to trying it out and honing your skills to help people reach their goals, that’s how you know OPM can be a viable path for you. Getting Started With Using OPM: A Step-by-Step Guide Step #1 – Lay the Groundwork (and Mindset!) Using other people’s money to finance your rental home investments might sound great, but the initial steps require the correct perspective, especially when approaching friends and family. Not everyone will be super stoked when you ask them to pay for your investments, but remember, this is a marathon, not a sprint. Be patient and prepare yourself for multiple calls, in-person meetings, and in-depth discussions explaining the benefits of real estate investment. And, despite your excitement, always remember to respect boundaries. If someone says no, thank them while maintaining a sunny disposition and ask if they know someone who might be interested. Don’t burn bridges. Plus, you need genuine connections to build your network. This is step one for finding and keeping your investors happy. The journey might be slow initially, but it will become easier as your network—and experience—grows. Step #2 – Leverage Your Network Naturally, your closest circle is the best starting point for these conversations. Friends and family often know and trust you, making them ideal candidates for your initial capital-raising efforts. While discussing investments with loved ones can feel intimidating, remember you’re not “selling” a product but offering a long-term opportunity. The information you’re sharing isn’t a bother for the right investors. It’s exactly what they’ve been looking for, and you could be helping them to solve a genuine problem in their lives. You’re enabling them to diversify their portfolio with access to an investment they might not have otherwise explored. Frame it as an opportunity to help them achieve their financial goals. Step #3 – Proactive Preparation Here’s a counterintuitive but crucial tip: start building your investor network before securing specific properties. That’s right – don’t wait until you have a deal under contract before you start talking with prospective investors. Why? Because once you have a deal under contract, the clock starts ticking. This puts undue pressure on you to find the money before a set date, which can take a casual conversation with a friend to a desperate sales pitch. When you talk with friends and family without a contract deal, you can avoid pressuring potential investors into quick decisions. By discussing real estate investing in a relaxed, pressure-free environment, you increase the likelihood of attracting long-term partners who are comfortable moving forward with you. Step #4 – Crafting A Sample Deal Package Potential investors will have questions. Anticipate their inquiries regarding potential returns, property types, and investment usage. To address these effectively, create a sample deal package. This comprehensive presentation, typically a PowerPoint deck, should showcase photos, data, financials, and details of a hypothetical real estate project. When meeting with potential investors, simply inform them that this sample represents the structure of your typical deals, allowing you to showcase your approach without an actual property at hand. By following these steps and maintaining a genuine, helpful approach, you’ll be well on your way to building a strong network of real estate investors who can contribute to your success. Step #5 – Building An Irresistible Brand As you start to gain traction with your friends and family, and they start investing with you, they’ll naturally start to refer people your way, thus organically expanding your reach. However, investors who don’t personally know you will want to do significantly more due diligence on you than those who have known you for years. This is why it’s important to start to build out your brand, so people who don’t already know you can start building trust with you. To start building your brand, focus first on your target investor avatar. In other words, who is your ideal investor? Create a fictional investor persona with a name, age, family details, occupation, location, real estate experience, and more. The more real you can make this person seem, the better. Next, use your investor avatar as the anchor for all your branding and marketing, including your website, email drip campaigns, social media, and more. This will help you ensure that all your messaging is focused on attracting the right people for your real estate opportunities. Next Steps to Invest with Other People’s Money At this point, you should have a clear idea of whether OPM is the right path for you to scale and grow your real estate portfolio. If it is a path you’d like to pursue, start by having casual conversations with a few friends and family members to dip your toe in and test the water. As you have those conversations, you’ll know whether you enjoy talking to people about these opportunities. If you enjoy raising private capital, you can expand into creating your sample deal package, website, and more. If you can build a strong brand that attracts the right investors, find stellar investment opportunities to help them reach their investing goals, and treat your investors right, they’ll refer their friends and family to you. This, in turn, will exponentially help you to grow your capacity to get more real estate deals. Have you used OPM in real estate investing? Do you have any experienced you want to share? About the Author Annie Dickerson is the co-founder of Goodegg Investments and host of the (egg-cellent) podcast The Life and Money Show. She also co-created The Real Estate Accelerator, a capital raising program for aspiring syndicators. Annie started her career as a 4th grade teacher with Teach For America, then went on to study game design in order to create educational games, and today champions lifestyle design as a successful entrepreneur, investor, and mom. Free Cheat Sheet: Comparing Rentals, REITs, Syndications & Crowdfunding What’s the best way to invest in real estate? Compare four common investment strategies at a glance with our free cheat sheet.
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