What to do with 300k OPM

10 Replies

Hello everyone, I've been offered a  300k short term loan (5 year) at a low interest rate and I'm mulling whether to take it and also what to do with it. I can support the monthly payments with my salaried job but I'm not interested in doing that long term. I have generally stuck to traditional investing with my own money so I'm in unfamiliar waters here. What approach would you take to take advantage of this available capital? 

Originally posted by @Jason D. :

@Neil Fanstone what are the terms of the loan? Is it amortized over 5 years? Interest only? Line of credit or loan?

Amortized over 5 years, loan, (interest+principal)/ 60 months interest and principal payable monthly. Ability to reup paid principal anytime. 

@Neil Fanstone I would want a 20 - 30 year amortization, but make it a 5 year balloon if they want the capital back in 5 years.

$300k @ 5% over 5 years is a $5500 monthly payment. It's just not a real estate type of loan.

@Neil Fanstone

What would the monthly payments be? Is this a private individual, or some type of lending institution?

Having access to 300k would be great, but amortized over 5 yr seems like it will be a pretty massive payment...

Neil,

$300k is a large amount to take on.  It's not access to free money it is still a loan with interest.  What would your plan be with it?  Buy a property and then finance it?  So you will have a 100% financed property with a large debt attached to it. Those scenarios don't turn out well.  

I understand using OPM to invest but not at 100%.  

I would figure out what im doing with 300k prior to obtaining the actual loan, seems like you are putting the cart before the horse. Mike D has the famous photo he uses often, but I cant seem to tag him...

@Neil Fanstone  If you have the savings/income buffer, don't turn down money at an interest rate (assuming 5%) lower than average stock market returns. If you park the 300k in a low-cost index fund averaging 7% annual return for 5 years, you will come out ~30k ahead. Of course you want to invest in RE, so while the money is an index fund earning its keep, you'll look for value-add deals to flip to others or the bank (BRRRR). 

Having 300k seed money is a good thing!