OPM - Other People's Money

1 Reply

Good Morning BiggerPocket Members,

I always hear investors talk about using OPM (other people's money) for your first rental purchase/fixer-upper. Can someone please explain how we (myself and the OMP) would both make money on the property purchase/flip?


Thanks,

Adam.

Great question Adam.

So there are several routes you can go when using OPM/private money. You can go the debt route or go the equity route.

The debt route is fairly simple and is typically used for the acquisition/rehab cost and is lended out on a short term basis unless you can find someone who wants to keep the money in the deal longer. So this would look like you finding a property beginning in your private lender to fund the purchase and rehab and then you would either sell it or do a cash-out refi depending on if you were flipping or keeping as a rental using the BRRRR. You make money by the proceeds of the sale or the cashflow from the rental. Your lender makes money by the interest and payments yall agree to in the terms of the deal.

The equity route is a little bit more complicated and I am still learning more about it myself but I will try to do my best to explain. It will look a little different depending on if you are flipping or doing rentals but it can work with both scenarios. For a flip your lender would bring the money and then yall would just split the proceeds of the flip. If you were doing rentals, you could use use your lenders ability to go out and get a loan, have them bring the down payment and then yall are 50/50 in the deal. You would use your portion of the cashflow to pay back your share of the down pmt until yall were equals in the deal. This is just a brief overview and there is a little more to it but I hope this gives you a better idea.

Read this post: 

https://www.biggerpockets.com/topics/879011

It gives a much better explanation of the equity splits when doing buy & holds.

-BA