We’ve all been there… You’re scrolling Zillow when you see a house you love but don’t have the cash to scoop it up for your REI portfolio. You know it would be an awesome investment property, but alas, “the math is not mathing,” as the youths say.
Well, what about investing with other people’s money, aka. OPM?
I don’t know about you, but even the phrase “other people’s money” sounds appealing to me!
It may seem too good to be true, but OPM in real estate is a key element in the REI world, from private money lenders to even traditional banks. In this post, we’ll explain how you can use other people’s money to invest in real estate.
BTW: We did an fantastic training program all about using OPM in real estate. In the Capital Syndicate by Lee Arnold, you’ll learn how to get private money through private, vetted brokers. After you today’s super helpful post, we suggest you take a peek at Lee’s Capital Syndicate program.
Alas, let’s get to this here OPM in real estate blog post…
What Is OPM in Real Estate?
OPM in real estate isn’t just asking a rich aunt and uncle to invest in your business. There are many ways to use other people’s money when investing in real estate. The phrase OPM also extends to hard money lenders, traditional banks, crowdfunding, and more.
Using OPM in real estate is a great way to get into the market if you have less capital than you’d like to start your REI business or perhaps you’d prefer to use whatever cash you do have for say, marketing, so you need OPM to actually secure deals.
True story: Many seasoned investors regularly use OPM in real estate. And, this strategy is beneficial for many different types of real estate transactions.
Using OPM in Real Estate
1. Private Money Lender
A private money lender is typically a friend, family member, or business partner willing to loan you money for your REI business. Because this is based on relationships and isn’t institutionalized, there aren’t standardized eligibility requirements beyond what your private lender requires before agreeing to the loan.
There are typically lower interest rates, and the private lender will get a return on their investment without being present in the day-to-day operations.
There is some risk involved when using his strategy for OPM in real estate, of course…
The downside of working with a private lender is that these are typically personal relationships turned into business relationships. If something goes wrong, you’re late on payments, or you can’t make their money back, you could strain your relationship with them.
2. Hard Money Lender
A hard money lender takes on more risk than a traditional bank lender, which means they charge a higher interest rate. According to our research, in 2024, the average hard money loan interest rate was 10%-18%.
The positive side of working with hard money lenders is that they are looking at the investment’s final product, whereas a traditional bank looks at the current state and financials of the property. A hard money lender can envision the future based on what you plan to do with the property in a way that a traditional bank can’t, because they want to avoid taking on that risk.
Hard money lenders can also provide funds faster than conventional banks.
3. Seller Financing
With seller financing, you can negotiate a deal directly with the seller of a property you’re interested in instead of going through a traditional lender. An agreement around the terms still needs to be signed as you are entering a mortgage deal with the seller.
Seller financing is a good option if the seller is motivated to secure a deal. And, with seller financing, you may be able to secure a lower interest rate. mortgage.
4. Traditional Banks
The standard way to use OPM in real estate is to secure a loan from a traditional bank. The most common types are adjustable-rate and fixed mortgages.
A typical mortgage covers 80% of the financing, but a traditional bank often only finances 70% of the property if it is a second home. You also need to pass a credit check to work with a traditional bank. And interest rates depend on the market and your credit score. Plus, so so SO much paperwork is needed.
5. Crowdfunding
Crowdfunding platforms allow people to make smaller investments with less individual risk. If people believe in your business plan, they can become investors in your project. The crowdfunding platforms typically charge a fee for these transactions.
Are There Risks with OPM?
While there are many benefits to using OPM in real estate, there are also risks associated with the practice.
For example, interest rates are typically higher than with all-cash transactions.
When working with other people’s or institution’s money, those entities want to retain their investment, so if a deal or project starts going south, you will have to handle the aftermath.
While you can control the ethics of how you conduct your business, you can’t control certain variables or unexpected economic turmoil in the real estate market, which could result in losing other people’s money.
Why Is Using OPM a Good Idea?
You have to weigh the pros and cons of every type of lending and see which, if any, version of investing with OPM in real estate works for your business. The higher the reward, the higher the risk, which is something to keep in mind at any stage of the real estate investment process.
Using OPM in real estate gives you access to properties that may be out of reach otherwise and also likely enables you to make a higher return on your investment. You can also expand your REI business at a quicker rate if you find a sustainable source of OPM in real estate.
Final Word — How to Use Other People’s Money to Invest in Real Estate
To use OPM in real estate investing, you need to examine your goals and financials for your REI business. Do extensive market research to determine the type of property you’re interested in for deals and work backward.
Once you know how much money you need for the project, choose the best use of OPM in real estate.
Private money lenders, hard money lenders, seller financing, traditional banks, and crowdfunding are all valuable ways to use OPM in real estate investing.
And remember to check out the Capital Syndicate by Lee Arnold — the easy button for OPM in real estate.
