Welcome to the world of real estate investing! Whether you're a seasoned investor or just dipping your toes into the market, there's always something new to learn. I'm Chenoah Michaud, your guide and expert real estate consultant in the vibrant Seattle Metro area, covering gems like Mercer Island and the broader Eastside of King County!
In this blog, we're going to explore one of the most exciting aspects of real estate investment: Leveraging Other People's Money (OPM). It sounds a bit like something only a secret society would know about, doesn't it? But don't worry, it's far less mysterious and much more accessible than it sounds.
I'll take you through the ins and outs of using OPM in your investment strategy – how it works, why it's a game-changer, and how to do it responsibly.
Leveraging Other People's Money: Making Your Investment Dreams a Reality (And Not Just in Monopoly!)
Ever heard of OPM in real estate? No, it's not the latest indie band. It stands for "Other People's Money," and it's not just for the rich and famous. And trust me, it's not like asking your friends to chip in for a pizza – it's way better!
While we'll dive into the exciting world of leveraging OPM in real estate, I'll keep our exploration high-level and reader-friendly. We'll touch on the key concepts and strategies without overwhelming you with too much technical jargon or overly detailed financial models. After all, my goal is to illuminate the path, making these concepts accessible and engaging, and saving the nitty-gritty details for our one-on-one conversations where we can tailor the discussion to your specific interests and needs.
Not Your Average Piggy Bank
OPM in real estate is all about using borrowed money, like a mortgage or hard money loan, to get a bigger return on your investment. This can dramatically increase your buying power and help you supercharge your investment strategies, whatever that might be. Leverage is your Financial Superpower, it allows you to control more real estate than your wallet alone would permit. Some people think that they need to buy real estate investments without any leverage to be truly profitable and that’s not at all the case, let’s look at some real life examples!
The Magic of Leverage and Compound Interest
Humor me, I know anything in the Seattle Metro Area for $500,000 is a rarity, but I chose to use simple math to make the concepts easier to understand. Let's say you invest in a property in Kirkland for $500,000. You put down $100,000, and the bank covers the rest. If the value increases by 5%, your property is now worth $525,000. That's a $25,000 increase on your initial investment, giving you a 25% return rather than just 5% which you’d be hard pressed to get with any other investment vehicle. It's not just a good deal; it's a great one!
Different investing strategies that use OPM
The first strategy that probably comes to mind is buying your primary residence, which is the most common way people use leverage. But, many don’t know that you can use leverage on many different investment strategies. Here are a few popular ways investors make profit using OPM:
-Fix and Flips
-Buy and hold
-BRRRR
-Cash out refinance on your primary residence
-Lease to own a.k.a. Lease Purchase Option
-Seller Financing or a mortgage wrap
-House hacking
I could go on and on about ways to make money in real estate without spending all of yours, but it all comes down to being smart about your investments and how you chose to invest your hard earned money.
A Sprinkle of Caution: Not All That Glitters Is Gold
While leveraging is an excellent tool, it's not a free-for-all. It's like eating cake; it's fantastic, but moderation is key. Plan carefully, understand the risks, and ensure you can manage the repayments. After all, it's not just Monopoly money!
Conclusion
Using OPM in real estate investing is like discovering a hidden level in a game – it opens up new opportunities and can significantly enhance your results. If you’re thinking about dipping your toes into the real estate market, I'm here to help. Let's find the right opportunities and use OPM wisely to achieve your investment goals.
I will dive into more detail about each of the ways you can make use of OPM and other investment related topics, but in the meantime, I hope this article helps shed some light on ways that you can make more money without spending all of yours.
Happy investing!
