If you look at housing prices today, it’s easy to think that real estate investing is only for the wealthy. But you don’t need tens of thousands of dollars in savings to fund your real estate deals if you use other people’s money (OPM).
In this article, you’ll learn what OPM is, how it works in real estate financing, and how you can use it to fund your next deal.
What Is OPM in Real Estate?
In general, the term OPM in real estate refers to third-party financing. While this can include traditional mortgage loans, it’s common for investors to use “OPM” to talk about other types of creative financing that allow you to fund deals without using your own money.
How to Use OPM in Real Estate
Real estate OPM loans are a valuable tool for financing house flips, rehabs, and buy-and-hold properties. Depending on the deal you’re trying to close and your financial situation, there are several ways to obtain OPM financing, so let’s look at each one:
With traditional mortgage loans, you provide cash for a down payment but rely on the bank’s money to fund the rest of the purchase price.
If you have enough savings, a healthy credit score, and a low debt-to-income ratio (DTI), then the traditional method may work well for you. And if not, you still have several other helpful options.
Seller financing is an agreement in which the buyer pays the seller in installments for the property. It’s also called purchase-money mortgages and owner financing.
If the seller owns the property outright, they can act as the mortgage lender and keep the title until the buyer fully repays the loan.
In other cases, when the seller still owes money on the property, the buyer may take over the seller’s mortgage payments plus pay the seller an extra fee.
With seller financing, you and the owner negotiate the down payment amount and interest rates, which can work to your advantage. This approach works best if you find a highly motivated seller.
Also referred to as joint ventures (JV), equity partnerships consist of two or more parties who pool their resources to fund a real estate deal and then divide the profits accordingly.
But what if you have no cash to contribute? In some cases, you can find an investor who will fund the purchase or down payment while you do the heavy lifting of finding the deal and managing the property. In this case, the person who provides the funds typically takes a higher percentage of the profits.
Private or Hard Money Loans
When asked, “What is OPM in real estate?” investors often talk about private or hard money.
Both types of loans have a quicker approval process, shorter repayment terms, and higher interest rates than most traditional loans. Because of that, these terms are sometimes used interchangeably, but there are important differences between the two.
Investors get private money loans from individuals and organizations as opposed to banks and credit unions. If you borrow from a family member or friend, the lending process may be more informal, but it’s still important to solidify the deal with a contract. If you don’t have great credit or if you need a faster approval process, this type of loan may work well for you.
Hard money lenders, on the other hand, are licensed to loan money and typically are more organized and have stricter requirements than private money lenders. These loans generally last one to three years and have a fast approval process, making them a strong option to quickly fund a deal.
How to Find OPM Financing for Your Next Real Estate Deal
Building relationships and networking are key to using OPM to buy real estate, especially when it comes to equity partnerships, seller financing, or private money loans.
To find excellent deals, you need a trustworthy real estate data source. You can actually use PropStream’s filters to find lending candidates. These candidates may have the funding you need and a willingness to loan on the right deal:
Cash Buyers: Use the “Cash Buyers” Quick List to find cash buyers.
Homeowners With High Equity: Enter a custom Estimated Equity percentage (found under the Valuation & Equity Info dropdown).
Professional Landlords: Combine these search filters: Non-Owner Occupied + Multiple Linked Properties.
Buy and Hold Investors: Search for Linked Properties (for this demographic, it doesn't matter if the property is owner-occupied or not).
Once you’ve found a potential lender, convincing them to fund your project is the next step. Present a valuable deal complete with data analysis to back up your potential income claim. You’ll want to show them exactly how they will profit from the transaction, boosting their confidence that a deal with you will be worth the time, money, and effort.
Are you ready to use PropStream to find OPM Financing? Try a free 7-day trial today!