Best use of OPM for Buy and Hold? What do you think?

[Keith Miller]

Hello All,

I'm an investor in Missoula Montana, and am trying to figure out the best use of OPM for expanding my buy and hold portfolio. Both of my deals have both dealt with "backyard development", first I converted a garage into an ADU, and now I'm building two backyard townhouses. I'm trying to figure out how to use OPM to repeat this procedure, as it's been very lucrative for cashflow.

My first draft of a plan is to borrow in the neighborhood of $150K from an investor, put 5% down and live it in myself, and build a backyard ADU while putting sweat equity into the main house through tiling, replacing/refinishing cabinets, installing new flooring, etc. I can cashflow about $1,500 per month on the first house I did this with, so I'd love to do it again.

But I'm looking for feedback on what you guys think will work as far as partnerships or other structures to make this a win-win for both parties. I'm hoping to hold it after everything is done, so maybe that means just getting a bank refinance after the property has been improved and stabilized?

[Elizabeth Flowers]

I would try to answer: "What do you think you could offer to make it a win for the investor?" and "Is it worth the risk of the leverage to borrow private money?"

I believe that you would refinance, yes.  You maybe could even refinance with the investor but I would recommend you go through a conventional lender for that if you can get a good rate.  Larger pools of money offer lower rates because their diversification and size offers them enough protection that they can do that.