Other People’s Money
Are you down with OPM? Yeah you know me. Sorry, that doesn’t rhyme at all, but I got a great email from some investors about using Other Peoples Money. One of the keys to what we do, is to use very little of our own money, and get it back quickly along with a profit. And as seen here, if you can use someone else’s money to lower your initial investment, all the better.
“When we first incorporated we went to National City in search of business loans and/or lines of credit. They offered us a signature line of credit which gave us an instant $40,000. The money was accessible via direct transfer to our business checking, credit card, or checks. All we had to do was personally guarantee it (at the time there were three of us in the company). After a year we called and asked them to bump it to $50,000 (the max they could go before SBA involvement). It wasn’t a problem.
“We used the money to fund down-payments on property, pay for the rehab costs, and all of the holding costs. After the work is complete we cash out refinance and pay the line back down to zero. We have now purchased six houses with only a few hundred dollars investment per person (it could have been much less). The rate on the line is adjustable and currently sits at prime +2% (11.25% as of July 2007). Although this may not be the best interest rate, it got us going. Another benefit of using 100% of the bank’s money is the decreased amount of mental stress that typically accompanies investing. We still had to be smart and manage our money and investments well, but I believe it has made our real estate investing much easier.
Trigon Real Estate, LLC