Harnessing the power of OPM
When you’re first starting out as an investor, one of the hardest things to do is figure out where you’re going to get the money to invest!
Unfortunately, many people end up quitting before they even start, throwing their hands up in the air and saying, “I can’t afford it!”
But as rich dad taught Robert, “Whenever you say the words, ‘I can’t afford it,’ your mind automatically shuts down. Instead, ask, ‘How can I afford it?’”
A lot of times, the reason why people get discouraged is because they think they have to use their own money to invest. Nothing could be farther from the truth!
In fact, using your own money to invest is sometimes a sign of low financial intelligence. One of the terms we use a lot is OPM (Other People’s Money). That’s what you want to be investing with.
Seem too good to be true? It’s not. There are countless people with money ready to invest, just waiting to find a good deal to do so. Your job? To bring them that deal.
How to find money
Most people’s first stop for a loan or additional funds is at a traditional bank. When the bank turns them down, they feel discouraged. But it’s important to realize that banks often don’t loan money for the types of properties or businesses that many investors pursue.
So, it’s important to find alternative sources of equity and financing. The following are a few suggestions to find OPM:
1. Family and friends
You can approach family or friends to invest with you. This is often people’s first avenue to get funding outside of traditional banks. You put up the time and effort, and they put up the money.
If you do this, however, two words of caution:
A. Treat them like investors, not people who love you and want to help you out. Be professional, use agreements, and do your best to give a stellar return.
B. Because there are so many emotions involved with family and friends, I don’t always recommend this route. A strong relationship is not worth risking over an investment that may not perform.
2. Seller financing
As with a rental property, the seller acts as the bank. You have a loan agreement with the seller that specifies the amount of the loan, the interest rate you will pay the seller, and the length or term of the loan.
3. Finance out of cash flow
For example, you buy a business and you have an agreement with the seller, lender, or investor to pay them back through the cash flow that the business generates.
4. Lender financing
There are many types of lenders available. This is where a mortgage or business broker can be a valuable member of your team. The brokers know what lenders lend for which investments. And best of all, the lender pays the fees of the broker, not you!
5. Assumable loans
In real estate, a property may have a loan attached to the property, which means you can “assume” the existing loan with little qualifying effort on your part. You must also assume the existing terms of the loan, which includes the interest rate, the term of the loan, and any other specifics.
6. Other investors
There are many people with money but no interest, time, or expertise in finding and managing certain investments. If you can prove that your investments will give the investor a good return and your team is set up, they may be willing to invest with you.
There’s always money
The point is that you should never say, “I can’t afford it.” There is always money to be had. As the old saying goes, “Where there’s a will, there’s a way!”
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