What is our responsibility on OPM?

Question

Just curious what’s y’all’s thoughts are on Other Peoples’ Money in a deal you put together.  Quarantine time has given me more so much time to catch up on projects at home and business which means time catching up on podcast after podcast.

A common theme that comes up is OPM (Other Peoples’ Money).  “I got into that place with 0 money down” or “I got person x to put the money up for this”  this all sounds fantastic and is part of the lure right??  But the part that gets glanced over imo is that Is followed by “I have nothing of my own invested so Nothing at risk” kind of concept.   Is it really that simple?  You find an investor and present a deal and they know the risk and trust you so they put up the money but if it doesn’t work then just a “well sorry that didn’t work out”?  Glad it’s not my money In there??

Account Closed · Answer

They just sue you, that's all. Not a big deal if you have $25,000 to $50,000 to spend on attorneys and two years to fight the lawsuit. Do not underestimate a scorned investor. Money is important to them and you stole it by losing it. Yeah, it's that serious to them.

Jeremy Hawkinson · Answer

@Scott Passman Scott I appreciate that response and 100% agree.  I’m trying to get a feel if that is normal practice.  It makes me a little uneasy in almost every podcast people talk about how little they have of their own money in the deal which means they have little to no risk?  I have 0 problems with people having no money in the deal.  I actually think that sounds great. It also keeps your cash available for reserves or if you have another deal come up and you need the cash.  But the problem I struggle with is it seems to be the mindset of the people “oh I have nothing at risk”.   While technically that’s true￼￼, ￼but if I borrow someone’s money I feel a heck of a lot more responsible for making sure that money comes back!

Jeremy Hawkinson · Answer

In any case my tone is not conveyed well through writing this, I’m not advocating that this is a good practice. I actually feel if that Is the stance of an investor using OPM￼￼ that actually feels really shady to me.

Side note. I actually didn’t think of this when I first wrote the post, but I was the financial investor  of some deals back before I started listening bigger pockets blah blah blah. Joint venture deals where I was the money, promises made and broke, and I was stuck at the end of it With 100k + in debt.  So now I’m starting to wonder if my “partner“ at the time was a BiggerPockets guy ha ha. It sure seems like he found me and promised me the world using my money, and no big deal when it all failed cuz he had nothing invested.

Scott Passman · Answer

@Jeremy Hawkinson Yeah, unfortunately there are many people out there who view it that way which is what makes it so challenging to find reliable people to invest with that you can trust.  You asked what is our responsibility with other people's money?  Our responsibility is to do everything in our power not to lose it, even if it means you lose money in a deal to protect theirs.  Using other people's money is a tremendous responsibility that should not be taken lightly.  They are trusting you to protect and build their future and if you accept their money, you need to understand the gravity and importance of that.

Underwrite very conservatively, make sure to have plenty of cash reserves, don't over leverage, be open and communicate with your investors, and to truly separate yourself from 90%+ of other investors out there when sh*t hits the fan protect their money FIRST to make sure they don't get burned.  While you may lose a some money in that particular deal the respect, trust, and reputation you build buy putting your investors first will lead to much more opportunities later.  You can get everything you want if you help enough people get what they want first.