Other People's Money

[Blanca Munoz]

Is OPM actually legal?  How does it work?  Can someone give me an example with factual numbers?

[William Anderson]

Blanca, 

When most people think and talk about OPM, we mean that we have excellent credit, and if residential or ratios are in line or if commercial we have at least six months of cash reserves.  The term does not mean that you can just sign and walk.  Even when you can get a zero-down loan and they are around, you still need excellent credit and reserves.  I read some comments about buying with no money, not a good idea even if you find someone willing to sign over their home just to get out of the mortgage.  

Now for the real fun.  OPM is the way to wealth and doesn't let anyone tell you differently.  Check out Apple, they are one of the most cash-rich companies in the world.  Yet, they have heavy bond debt.  Why don't they just pay off the bond debt, they have the cash.  Because they are so big their cost to borrow is extremely low.  It simply makes sense.

This is called leverage. When you do your ROI on a property the less you put in the higher the ROI. Always use a mortgage when the cost of the mortgage is less than the opportunity for your cash. If you can earn 10% with an investment or pay cash for one with a potential mortgage of 6%, why not keep the difference?

All of this is based upon your experience in the business, your credit rating, the asset's ability to generate cash, and your assets.  Lots of opportunities to use other people's money.  FYI, the "feeling you get when you pay cash for a property", is dumb.  I do it on occasion to acquire it then rush to get a mortgage thinking of all of that money tied up.