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OPM - The art of leveraging
| | Friday, December 10, 2004 @ 08:00 AM EST
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Contributed by: John Michael
John Michael Properties
Read more archived articles about Squeezing More Profit
One of the greatest advantages of real estate investing is the power of leveraging other people's money.
When a property appreciates in value, it will appreciate on the value not on the original investment. Therefore, if you ‘leverage’ the property with "OPM". You can make an investment even more valuable by having the property rented out. The monthly mortgage payment is being paid by the renter and someone else is paying for your equity growth in the property.
"Money is a terrible master but an excellent servant."
- P.T. Barnum
The best source of cash for your real estate business is other people's money. Perhaps one of the greatest "secrets" of the richest people in the world is summed up in those 3 words: Other People's Money – OPM for short.
The majority of most successful people launched their fortunes using OPM.
Your goal is to not use your own cash. The most successful real estate investor tends to use OPM (Other People’s Money). Keep this in mind as you start to invest.
Hold out for the limited money down or no money down deal rather than tying up a ton of
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money in one property.
Leverage, terms and long loans can be great friends. Keep these principals in mind:
- Leverage is simply controlling a lot of real estate with little or none of your own money. The more the better.
- You should attempt to get the maximum loan to funding possible with each property.
- The best loans have fixed interest rates and are assumable without qualifying.
- Keep your equity as low as possible so you can keep more cash available for investing.
You can find "OPM" by writing to various lenders asking them if they would be interested in your real estate loan.
By calling lenders in your area who might be interested in lending on your real estate proposal.
By visiting in person lenders whom you think would be willing to help you.
By looking on the Internet for real estate lenders who might work with you on the deals you have.
By reading the Real Estate Section of your local large-city Sunday newspaper, looking for ads run by lenders in your area.
Other great sources of "OPM"
TCI's Lender finder at: http://www.thecreativeinvestor.com/LenderFinder-index.html
Find properties that has been sold in the past few months by searching the public records at the county recorder's office. Find property that sold to real estate investors by banks, credit unions, HUD, VA, FNMA, or any other major source and if the buyer is not an individual but say a corporation or partnership you have most likely bagged an investor.
The deeds should give the mailing address of the new buyer. Send them out a letter and tell them about your ability to locate real estate or better yet give them a call if listed.
Any one who has money could be a source of funds for your real estate purchases such as Doctors.
Another great source is checking your recorders office again looking for individuals who holds mortgages on property. This has provided me a great source for hard money loans.
Retirement plans are a great source of real estate investment funds. A lot of people don't even know they can use their retirement plans funds to invest in real estate, mortgages and trust deeds. Many, once they stash it away, forget they even have money in a retirement account.
Many investors think that money (or lack of money) is what stops them from closing a deal. This is not true it is a myth that holds some investors back.
Understand that money is NEVER an issue - IF the deal is right the money will come.
Simply think creatively, go to the source of funds and simply ask for money. The worst that can happen is you get a "NO". Each no only places you closer to a "YES".
Note: John Michael is the author of many guides that can help you become more successful as an investor. See http://www.thecreativeinvestor.com/ChanPart-JohnMichael.html
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