Can I rant about OPM

Question

In real estate investing "OPM" is thrown around so much like it's just some magical thing. You just wish for it, and it shows up on your lap. It just doesn't magically appear. Yet in everything, it gets tossed around like it's magic and as convenient as your whipping out your credit card. But that's not at all how it works. And yet, it's literally behind every single "I BOUGHT THIS WITH ZERO MONEY" or "How to buy X when you don't have money" video and blog post out there. And no one is ever upfront or honest about the amount of leg work or effort that goes into obtaining other people's money. It's just a magical solution to all your problems.

I literally made a comment today about not being a cash buyer (yet) and the first comment is "Don't forget about OPM"

Yes, excuse me while I go pull it out of my rear end.

Scott Trench · Answer

I think that the reality of the path to raising OPM is a long and arduous one. It's not as simple as raising a few million bucks and going to town.

In my opinion, a responsible way to raise OPM looks like this:

Start small - house-hack, DIY, learn the business. Flip, remodel. Use your own savings to buy boring real estate the old fashioned way.

Talk about real estate and immerse yourself in it, a lot. Slowly snowball. Go through the 3, 5, 7 year grind of learning this business, doing a few deals the old-fashioned way, and building a large series of mental models. Emerge from this journey a self-made millionaire, still driving your beat-up old car, still living like you make $40,000 per year.

Post here or share the long journey on social, piece by piece as much as you can, and build a reputation for doing things the right way, demonstrating clear mastery of your market, niche, and approach. Build a following over time by helping hundreds, or thousands, of other real estate investors with questions and answers that help them on their journey. Develop mastery in this business not just in your niches and region, but by learning the challenges of investors nationwide and worldwide.

Then, when about to raise that first sum, consider putting in a large portion of the equity yourself.

With a track record, scars, bruises, and ~5,000 - 10,000 hours of time invested in the world of real estate investing, as well as your own skin in the game, you will be able to begin attracting OPM and can start earning a variation of two and twenty, and have a shot at the elusive good life that comes with the millions or tens of millions that can be made with raising large amounts of capital and deploying it effectively. This is the path to "overnight success" in real estate, in my opinion. 10-15 years of nonstop hustle.

When you do raise OPM, go in eyes wide open. The allure of two and twenty is irresistible and I'm not saying not to go for it - definitely go for it. But, know that a price of using OPM is a clear-cut time horizon. This puts you at the mercy of the market in the short-medium term.

When you invest alone you can buy property and wait 30 years for it to appreciate if necessary. You can finance it with 30-year debt at low interest rates.

With OPM, you have a timeline. You have to return the money, usually within 3-5 years. Market risk is now a real threat to your business, and your reputation. You can't finance property on 30-year amortization debt, and instead have to use adjustable rate debt, or debt with 3, 5, 7, or 10 year balloon payments.

Understand that in this business you WILL lose money at various market cycles when using OPM.

When that happens, don't allow the losses on that deal to wipe out the track record you spent a decade or two cultivating.

Alicia Marks · Answer

I tell a lot of new investors to start with hard money loans, but they will still need some of their own capital. Lenders typically run the deal before agreeing to lend, so that is a good safeguard to help assess whether to move forward. Someone funding a first time deal with OPM would typically only be a family member or close friend. Experienced private lenders won't typically take the risk. Lending between friends and family rarely goes well for most people.

Beth Johnson · Answer

Another avenue not discussed in finding OPM is to better understand how to set up and safeguard the other person's money. Learning how to be the private lender, as an active investor, not only helps to educate you in real estate investing, but it also builds acumen around the financing part of it from the point of view of the lender. As others have mentioned, experienced private lenders may not want to take a chance on someone new to the game, but less experienced or new private lenders may want to take a chance IF they know you already, if you've got some skin to put in the game, and if you can share with them you understand and care about protecting their capital investment. This isn't simply with a single deed/mortgage recorded and a Promissory Note but also through other due diligence such as title insurance (lender policy), hazard insurance binder with the lender as a loss payee/mortgagee, using an experienced attorney to draft up the legal documents, and closing through a 3rd party and not exchanging money directly without a paper trail. BiggerPockets has a new book out that educates on this subject from the POV of the lender but it's also a good resource for active investors to be able to understand and articulate how to structure OPM deals as well. Good luck!

Chris Levarek · Answer

@Michael Key Raising capital requires a brand with credibility. It takes time because when you start, you don't have a brand. If you have a brand that checks the boxes, people invest or buy.

OPM is 90% marketing(brand/image), 10% product(real estate) and this typically applies to many other services/products.

Think Apple versus Windows. Same product. Exact same product, a computer. Yet, People pay 3x as much for an Apple. Why? Brand.

If you work on the brand and credibility, OPM falls into place. But you have to spend the time to build the brand, this takes 2-3 years in most cases.

People simply won't resonate with something or someone they don't know or understand or can't find.

Now will people invest with brands that have more experience? 100%. But if they never know about them, find them or resonate with them; no they won't.

Case in point for many experienced investors on this platform seeking OPM, they have no brand/profile/image yet expect to find OPM.

Robin Pentecost · Answer

I loved this post! Have you listed to episode 635 of the Bigger Pockets podcast? Sam Primm talks about the process and how he pitches to investors and how he builds the relationships. It sounds like he started out like most people, so it was so inspiring to hear someone tell the story of how they went from average dude to 20 million.

Chris Seveney · Answer

@Michael Key yes I concur as people make it seem so easy. It took me 2 years of experience (and 20 in real estate) before I used opm

Yes gurus make it seem like you wave a magic wand and poof it shows up. It doesn’t. You need money to start in this business or a way to make money

The best way to raise opm is by showing you are an expert in your field either by helping others by sharing your experience or by adding value to others in some fashion.

Just saying hey I have a deal but have never done real estate before (like many charge thousands for) has an almost zero success rate

Michael Key · Answer

This is something I've only learned more recently about. Structuring deals, notes, 1st or 2nd position, etc. But it goes back to the relationships thing. I had to find people who have done this and then ask directly, what does a win look like for you?

Eric Warren · Answer

This absolutely correct! It's the new "black"   Build "generational wealth and OPM" are running neck and neck. Both take tons of work, consistency, and commitment.

Jay Hinrichs · Answer

I wonder who the authors of this new book are  ?  :)

Can I rant about OPM

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