Using Other People's Money to Invest In Real Estate (Q&A)

 

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Question: Cameron I continue to hear and read about real estate investors leveraging other people's money (OPM) to purchase real estate investments. My question is why don't people use their own money if they have it and where do they invest their money if they don't invest it in real estate.

Answer: Hi Jon, I'll be honest with you... In my opinion, most real estate investing gurus preach OPM because that is what sells books & courses. Many people don't have the 25%-30% down payment that most banks make you pay when barrowing money for investment property. With that said, don't assume that just because someone uses OPM that they're not also investing their own money in real estate as well.  The main reason for using OPM, is that there is far more of it available than people have themselves. For instance, if you only have 50k yourself, that greatly limits what you can do. However, bring in 3 others with 50k, and you can really do a ton more. Again, the assumption that people that tend to use OPM and don't put in their own, is flawed. With that being said, using BANK money is also OPM. Banks get deposit money.. and only are required to have X% of that capitalized. So where do you think it goes? Yep, loaned out or invested. So banks use OPM, investors use Banks and OPM (both of which are OPM). As for your 2nd question, there are many investment options out there outside of real estate. Stock, Bonds, Mutual Funds etc. It really depends on the investor. Personally I invest in real estate, individual stocks and my IRA.

 

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This is not legal advice. Please contact an attorney for professional legal advice.