Real estate investing can be profitable. But not everyone has enough cash to start. The good news? You can use other people’s money (OPM) to build your portfolio. This strategy helps you grow faster with less risk.
This guide explains how to invest in real estate using OPM. You will learn different methods, risks, and tips for success.
What Does “Other People’s Money” Mean in Real Estate?
Other people’s money (OPM) refers to funds from outside sources. Instead of using your own cash, you borrow or partner with others. Common sources include:
- Banks (mortgages)
- Private lenders
- Hard money loans
- Partnerships
- Crowdfunding
Using OPM lets you control properties without full ownership. This increases your buying power.
Why Use Other People’s Money?
There are several benefits:
- Leverage – Buy more properties with less cash.
- Lower Risk – You invest less of your own money.
- Higher Returns – Earn profits from larger deals.
- Faster Growth – Scale your portfolio quickly.
However, using OPM also has risks. You must manage debt and partnerships carefully.
Ways to Invest in Real Estate With Other People’s Money
Traditional Bank Financing
Banks offer mortgages for real estate investments. Common loan types:
- Conventional Loans – Requires good credit and a down payment (usually 20-25%).
- FHA Loans – Lower down payments (3.5%) but for primary residences.
- Commercial Loans – For rental properties and commercial real estate.
Pros:
- Lower interest rates.
- Long repayment terms.
Cons:
- Strict approval requirements.
- Slow process.
Hard Money Loans
Hard money loans come from private lenders. They focus on the property’s value, not your credit.
Pros:
- Fast approval.
- Flexible terms.
Cons:
- High interest rates.
- Short repayment periods.
Best for fix-and-flip projects.
Private Money Lenders
Private lenders can be individuals or companies. They offer more flexibility than banks.
How to Find Them:
- Real estate networking events.
- Online lending platforms.
- Friends and family.
Pros:
- Negotiable terms.
- Faster than banks.
Cons:
- Higher interest than traditional loans.
- Personal relationships at risk if deals fail.
Real Estate Partnerships
Partner with investors who have money but lack time or expertise.
Types of Partnerships:
- Joint Ventures – Split costs and profits.
- Silent Partners – They fund, you manage.
- Syndications – Pool money from multiple investors.
Pros:
- Access to larger deals.
- Shared risk.
Cons:
- Profit sharing.
- Potential conflicts.
Seller Financing
The seller acts as the lender. You make payments directly to them.
How It Works:
- The seller holds the mortgage.
- You agree on terms (down payment, interest rate, repayment period).
Pros:
- No bank approval needed.
- Flexible terms.
Cons:
- Higher interest than bank loans.
- Sellers may require a large down payment.
Home Equity Loans
If you own a home, you can borrow against its equity.
Two Options:
- Home Equity Loan – Lump sum with fixed payments.
- HELOC (Home Equity Line of Credit) – Reusable credit line.
Pros:
- Lower interest rates.
- Tax-deductible interest (in some cases).
Cons:
- Risk of losing your home if you default.
- Limited by your home’s equity.
Crowdfunding
Online platforms pool money from multiple investors.
How It Works:
- You invest in properties alongside others.
- Returns come from rental income or property sales.
Pros:
- Low minimum investment.
- Passive income.
Cons:
- Less control over decisions.
- Fees reduce profits.
How to Get Started With OPM
Step 1: Build Your Credit
Good credit improves loan approval chances. Pay bills on time and reduce debt.
Step 2: Network With Investors
Attend real estate meetups. Join online forums. Build relationships with lenders.
Step 3: Prepare a Strong Proposal
Lenders and partners need confidence in your plan. Include:
- Property details.
- Financial projections.
- Exit strategy.
Step 4: Start Small
Begin with a low-risk deal. Prove your ability to manage investments.
Step 5: Scale Up
Reinvest profits and take on larger projects.
Risks of Using Other People’s Money
- Debt Burden – High loans can lead to financial stress.
- Foreclosure Risk – Missed payments mean losing the property.
- Partnership Disputes – Misaligned goals can cause conflicts.
- Market Downturns – Property values can drop, increasing risk.
How to Reduce Risks:
- Choose stable markets.
- Have backup funds.
- Use legal contracts.
Conclusion
Investing in real estate with other people’s money is a smart strategy. It helps you buy more properties and grow faster. Key methods include bank loans, private lenders, partnerships, and crowdfunding. Each has pros and cons. Success depends on good credit, strong proposals, and smart risk management. Start small, build trust, and scale wisely. By using OPM correctly, you can build wealth without needing a huge amount of cash.
Related topics:
How To Use Leverage For Real Estate Investing
