Have you ever heard the term OPM or Other People’s Money?
When we talk about buying real estate – we’re always talking OPM. (Well, unless you’re incredibly wealthy and have millions in cash, that is.)
But why? Why do we use other people’s money to buy assets? Is it because we don’t have the cash, we don’t have the credit or we just don’t want to use our own cash or credit?
It could be any of those reasons… and there’s a few other good ones too.
OPM Means Everybody Wins
When you borrow money – and I’m not talking about a bank loan – you’re giving someone else an opportunity to tap into an investment they might not otherwise get into.
Yes – the bank is OPM, but that’s a bit different. We’re talking here about an investor or somebody with big chunks of cash.
Maybe they don’t know much about apartments except that they’re good investments.
They don’t want to learn or be bothered with details… but they do want a good return on their money.
So you come along and offer them the chance to get in on the game. They use their money and you use your knowledge and a winning team is created.
Where do I find OPM?
The truth is that if you want to use the financial power of others – you have to get creative. You have to think outside the box.
Here are a few places to think about finding investable cash:
- Your friends and family.
- Business associates.
- Hard money lenders.
- REIT’s – real estate investment trusts.
- Contacting accountants and attorneys who may have clients looking for investments.
- Life insurance agents.
- Financial advisors.
- The seller of the property.
There are so many sources for capital…but of course, it’s not as easy as it seems. Then again, should it be?
How to Ask for Cash
An easy way in is to pool your own money with others’ cash too. That’s what we do at Adams Investor Group.
We put together syndications to buy big properties.
(Not familiar with this term… in a couple weeks if it would be helpful to you I will give you the low-down on what a syndication means.)
If you invest $100,000 in a deal you get an ownership stake in the property based on the amount of capital contributed.
If the property returns $200,000 in cash flow each year, you get an allocation of cash based on your ownership percentage – make sense??
And nobody calls you about a stopped up toilet either!
That is where Adams Investor Group steps in to take the burden of managing these large properties for you.
Anyway, if you are doing it on your own, just remember a few key things about asking for cash:
- Make a plan – dot your I’s and cross your T’s.
- Give your potential investor a really good reason to help you – what’s in it for them?
- Provide not just a plan of how they get paid, but a plan on how they can get their cash back.
This is a serious business, so take it seriously and take your investor seriously.
Show them why investing their money is great. Explain with numbers why apartments are excellent income producers and have great tax advantages.
Show them how increasing rents and adding income streams increases equity and builds their initial investment up too.