No OPM - What is the best approach?

Question

I am extremely apprehensive when it comes to borrowing from, or partnering with, friends/family/acquaintances. I just can't stomach the idea. But because of my apprehension, I fear I might be missing out big time (benefits of leverage, expanding network, etc). Is it reasonable to plan for a 10-year time horizon (i.e., retire in 10 years) despite this constraint? My personal definition of retirement is basically passive income being more than expenses, so it's not an overreaching goal IMO.

Would love to hear other investors who mainly use banks as their OPM. Thanks!

Steve Vaughan · Answer

I wouldn't borrow or partner with friends/family either.

But what about banks? Are you not able to borrow conventionally?  Opposed to that on principal?   Very tough to save your way to expensive asset purchases, especially with a 10yr time horizon.

Owen Dashner · Answer

Hard money is also an option - refi out or sell when the project is done.

Crystal Smith · Answer

Banks are ok but there's a limit on the number of Federally backed loans you can get from banks. Given this limit learning how to syndicate/pool money (i.e. using OPM) is something that you should put in your toolbox. But it also means understanding the rules/regulations to do it. The best place to start is with friends/family & acquaintances. It does not mean you should not use banks but even with the banks, you'll be using your $ (20% down). If you can get over the "apprehension" you'll reach your goal a lot faster.

John Warren · Answer

@Dan Dima-ala I agree that it can be very challenging to partner with family and friends and there are huge risks to your most important relationships if something goes poorly. I have purchased properties here in my Chicago suburbs areas on my own and also with partners. I much prefer business partnerships with people who I am unrelated to. For one thing, it is much easier to find someone who is a great business partner if they aren't related to you since it is unlikely that all your family will be entrepreneurial. Also, if a business relationship sours or if you out grow a partnership, you can move on and really have very little interaction with the other person.

As an individual, it is statistically likely that you will be financially free in 10 years if you invest aggressively and keep strong cash reserves to get you through the tough times.