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December 2, 2024 | 3 Minute Read
SEVENTH COMMANDMENT: OTHER PEOPLE’S MONEY
When I first got started in real estate investing, my biggest false belief was thinking I needed a mountain of cash saved up to even begin. It was daunting, especially when I learned that 90% of self-made millionaires created their wealth through real estate.
NINETY PERCENT.
That’s 9 out of every 10 self-made millionaires!
But then, I heard something completely different from what I originally believed. Carlton Sheets back in the late 1990’s.
He claimed you could invest in real estate without using a single dime of your own money and still make a fortune.
Since then, I’ve done over 2,200 deals, and more than 98% of them were completed using the same principle that Carlton Sheets preached: leveraging OPM (Other People’s Money).
Here’s my point: OPM is far more accessible to EVERYONE than most people realize.
Before we dive into the specifics of how I leverage OPM, let’s recap where we are so far.
Ten Commandments of House Flipping
Thou shalt know the After Repair Value (ARV) ✅
Thou shalt keep multiple exit strategies ✅
Thou shalt make offers daily ✅
Thou shalt leverage the inspection period ✅
Thou shalt not advance money to contractors ✅
Thou shalt build relationships ✅
Thou shalt master Other People’s Money (OPM) 👈
Thou shalt view failure as a lesson
Thou shalt respect the game
Thou shalt be nice
Seventh Commandment: Other People’s Money
Leveraging OPM is incredibly effective and relatively straightforward once you know how to run the numbers. But for me, the real magic of what I do has always been the ability to leverage a power team to reduce my time spent on a single flip. There are two ways to fund a project.
Hard money loan:
Work with a money broker like REIBrokers.com to help you find the right lender for your project. They are fellow investors who speak your language and will line you up with the best lenders, review terms sheets, and work with you hand in hand up to the day of closing. With an acquisition, you can obtain up to 80% loan to cost. If you are looking to refinance a current rental property, lenders will loan you up to 75% of the appraised value.
Private money loan
A private money lender is a colleague, fellow investor, friend or family member. Depending on the relationship and level of trust between the two of you, they may fund the majority if not all of the costs and renovations.
The exact amount varies depending on the type of lender, but this may not cover everything. You may need to account for:
Down payments
Closing costs
Holding costs (utilities, insurance, etc.)
Lender fees and interest
Using this approach, you can:
Minimize your liability
Help your lenders earn a great ROI
Free up your capital to take on multiple projects simultaneously
Based upon your experience level, credit score and type of project will determine how much each of these lenders will loan to you.
If you follow the previous commandments like networking (Commandment 6), mastering your numbers (Commandment 1), and maintaining strong exit strategies (Commandment 2), you’ll have an endless supply of OPM. But if you base your deals on hunches or let a realtor coerce you into a questionable deal, the money will dry up faster than the Sahara. If you follow these commandments with discipline, the money will always flow. Accessing it will be the least of your worries as you build your real estate portfolio.
In our next commandment, we’ll tackle the taboo topic of failure. If positioned correctly, failure can become your greatest asset. But if handled the way most people are taught, it can kill your momentum before you even get started.
