Private Money in Real Estate Investing – The Secret behind Other People’s Money (OPM)
Private Money in Real Estate: How To Finance Your Real Estate Deals Without The Banks!
Investing in real estate has become more challenging in recent years – private money
or other people’s money (OPM) has gained ground over conventional financing or mortgages.
Seller financing or equity partners (cash investors) are the secret behind most real estate investing ventures today. Many investors opt to use OPM instead of their own funds, either because they deliberately choose not to use their own funds and resources (as a way to limit their risk or exposure to liability) or they have no choice, since they have no money and/or credit.
Before starting any private money real estate investing strategy, an investor needs to understand some important points, which can affect his/her success rate in the business:
Does he/she have the discipline to live within his/her means or restructure his/her lifestyle, so he/she can safely increase over time any real estate investing efforts?
Does he/she plans on relying solely in creative financing techniques, without conventional financing, or eventually use a mix of both strategies, especially for long term investing?
Is he/she desiring to build a solid real estate investment strategy (long term) or only speculate (short term?)
Most investors entering the business are starting out with no money or credit, therefore have no choice but to use Other People’s Money (OPM.) Eventually financial discipline (saving a percentage of the profits as each deal closes,) and increasingly investing “their own skin in the game” are going to propel the business to the next level.
Examples of private money in real estate financing using OPM are:
- Owner Financing (Title passes to Buyer either via first or partial/second mortgage)
- Land Contract (title passes to Buyer when certain conditions of the contract are fulfilled)
- Subject To (the existing mortgage remains in place, while title is transferred to the Buyer)
- Equity Partners (Joint Venture Partnerships)
- Private Money (Local investors fund real estate via cash, self directed IRAs, lines of credit, insurance backed securities and other liquid financial instruments)
- Bartering (exchanging services or real estate for other services or property)
- Borrowing (or negotiating) real estate commission, title insurance fees, title costs, judgments on title)
- Creating Mortgage Notes or Paper (and selling it to investors)
- Lease or Option Contracts (Lease Option to Buy, Master Lease and regular Option Agreements.)
The next natural step for a real estate investor who uses OPM for raising funds for his/her investment strategy is to establish his/her own “Private Bank” as a well formed real estate syndication group.
The Private Bank concept is appealing to the hands-on investor, who is looking to purchase real estate for rehabbing, flipping or buy and hold, and the “silent investor,” who prefers hands-off transactions, who prefers being a “silent investor” and just collect return on his/her money.
Real estate syndication is like having your own open checkbook – the only limitation to the amount of money you want or need is your ability in locating properties, since the funding will be readily available.
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