- Why should I use OPM for real estate investments rather than my own money?
Because you only have so much of your own money. OPM is almost unlimited.
In theory from a finical perspective you can create a deal that creates an infinite return on investment if you are putting nothing down and using others money. Obviously you must calculate time and other factors that come into play but there are not many things these days that produce without your own money invested.
Thanks guys. I just wanted to hear some other perspectives on it. I have a friend that asked me and I wanted to make sure I covered all my bases when I respond to him.
Thanks again, Peter
@Peter Eiseman , this is not an either/or choice. Some investors choose to borrow funds from others exclusively in their entities (LLCs, Corps., etc.) to limit personal liability, to free up personal lines of credit or to increase return on investment.
It often makes sense to use your own funds if you have them to limit interest charges. Sometimes using personal funds can make it much easier to close a deal that has a limited time to act. It will also be much easier to attract OPM and at better rates if you have some personal funds committed to your deal.
For many, the best answer is a combination. As @Dawn Anastasi says, when you become active you will often encounter deals when all of your personal funds are deployed. When that happens it may make sense to borrow funds rather than miss a great deal.
Welcome to BP.
Using leverage will make you more money. Let me show you how.
You buy a property for $100,000 paying all cash, make $10,000 worth of repairs, cost you $10,000 in buying, selling and holding cost, put it back on the market and sell it for $150,000.
Your profit is $30,000, but you had invest $150,000.
Now this time all figures remains the same, but instead of paying all cash, you pay 20% down and acquire 80% loan to purchase this property, there will one additional cost here and it will be financing, let's say it's $5000.
Your profit is $25,000, but you ONLY had invest $45,000 in total this time.
You could buy almost 3 properties with the same amount of money and make about $75,000 (roughly).
Hope it helps.
Thanks James, Yes, I agree 100%. I was just trying to get as many different perspectives as possible.
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