How To Build Your Property Fortune With Other People’s Money
If there’s one thing I’ve come across more than anything else in property investing, it’s this!
It’s something so many budding property investors use as an excuse…
It’s been described as “the biggest stumbling block” for people wanting to start out…
It’s more than likely stopped you from building your property empire too…
I’d even wager that it’s probably stopped more people getting into property than anything else I know!
I’m talking about having enough money to invest in property.
But what if I told you there was a smart way to buy property, and start building your property fortune, without having to pay for it yourself?
In fact, when you use this OPM property formula, you can use other people’s money to pay for your properties!
I’ve been using this formula for years, and today I want to give it to you…
The Secret OPM Property Formula
So as I’ve mentioned, the biggest excuse that average property investors make is to say they don’t have money to invest in a deal.
As a professional property investor, I know how to leverage Other People’s Money (OPM), which makes finding the money the easy part.
There’s a saying in the property world:
“Find the deal and the money will come”
In South Africa, the interest rates on bonds are not always ideal, and you’re restricted by the number of bonds you can have depending on your affordability (IE your salary determines how big a bond you can get, or how many you can get up to a point).
Most South Africans also don’t have the cash to buy property, so they’re reliant on the limited banking system.
This is where creative finance comes in.
Creative finance is the solution to funding deals without having to always rely on the bank, by using other people’s money!
There are quite a few ways you can do this, but today I’m going to introduce you to the four most popular ways…
Four Ways To Creatively Finance Your Property Deal With OPM
Property Finance Trick #1: Joint Venture Partnerships
Imagine you’re an individual who is highly motivated, well connected and has an abundance of great deals on the table…
But there is one problem.
You don’t have the cash.
And unfortunately your affordability is maxed out, and you can’t get another loan from the bank.
This is the ideal situation for a creative finance joint venture solution.
A joint venture partnership essentially means you’ll go into business with one other person, and you’ll setup a contract where the two of you invest in a property together.
You obviously have to choose a partner who has the cash facilities to make the deal work and someone you can trust and rely on to help you where needed.
Start with the people around you. Ask your friends, family, colleagues and acquaintances if they’d be interested in investing in a lucrative and positive cash-flowing property (or if they know someone who may be interested).
There is a law in social dynamics known as ‘The Power of 6’, I’m sure you’ve probably heard of it.
What The Power of 6 says is that any person in the world can reach any other person in the world through a maximum channel of 6 people.
What this means is that I could connect with Oprah Winfrey through a network of 6 people.
If I followed the right channel I could call people in my networks to introduce me to those in new networks and so on and so forth until I get to Oprah.
They say that a maximum of 6 networks will be able to connect you to anyone in the world.
The importance of knowing this is that you might not have someone in your immediate network that can fund a deal, but with enough patience and persistence you’d be able to reach more people than you realize, let alone the right people.
Trust me when I say that there are people that have more money than they know what to do with. Find them and fund the deal.
So let’s imagine you’ve found a distressed property, and the deal works.
You’ve run the numbers and you’ll see a sizable return.
The next step is to leverage your network and present the deal, the return and the guarantees (remember there are no real guarantees, but explain what insurances you have taken out and how you plan to mitigate any risks).
Sell the idea to your network and ask them for help or an introduction to someone who may be interested.
Once you have a partner who likes the deal it’s time to setup a contract. At this point you’ll want to consult with your legal advisor and ensure your contract protects both parties, and you’ll need to explain the roles and responsibilities of this partnership.
Let’s say you have everything you need for the property deal other than the money.
Perhaps you have the builder’s connections, networks with estate agents, and you have flipped a few properties before.
You only need the cash, and therefore you may want to make the profit split slightly in your favour, as you’ll be putting in most of the work. So somewhere in the area of 60/40, or if your partner brings 50% of the cash and 50% of the work/time, then it makes sense to divide the profits on a 50/50 basis.
Ultimately, you want to look at what you need in a partner and find someone that fits the bill. Be clear with your contracts and get the right professional to sign it off. Joint ventures are very clever ways in which you can leverage two dynamic individuals’ resources to benefit both parties.
Property Finance Trick #2: Seller Financing
This is where the seller becomes the bank and ‘loans’ you the money.
These situations are not very easy to come by, but they’re a potential cash cow when they do.
A typical scenario that leads to seller financing is when you find a highly distressed property that’s been run down over many years.
The owner will struggle to sell the property and is willing to negotiate. You’ll sometimes find that the renovations could cost an arm and a leg.
Seller financing is where you ask the seller to go into a partnership agreement with you.
For example, you could negotiate with the seller that you invest money into renovating the property while they still live there, and once the property is back to market value, you can sell it and then split the profits.
In this scenario you’ve spent zero purchasing the property and you’ve only invested the refurbishment costs.
You can arrange a split with the seller and you’ll have a very low entry into a deal with a sizeable profit.
This is a win-win scenario as the owner gets to sell a highly distressed property and you get a decent profit for minimal capital.
In these scenario’s it’s incredibly important to have a solid contract in place. You’ll most likely not know the seller and won’t be able to trust them entirely in the beginning.
You must make sure to get legal advice and setup a contract that protects both parties and ensures a fair deal going forward.
Property Finance Trick #3: Credit Cards
Imagine buying a property could give you a free trip to the Figi Islands?
That’s the best part of this creative financing strategy!
Unfortunately, credit cards have a very negative association in the market, and that’s because people use credit cards for bad debt (IE things that don’t bring in money, like cars, clothes, toys and so on).
This usually puts people into difficult situations when they renege on their payments.
They end up with financial difficulties and they blame the credit cards (instead of themselves for poor financial management).
In the professional property world, we call credit cards investment cards, because that’s how we use them.
Essentially they’re investment tools, and we use credit cards for investment purposes (IE positive cash flowing properties).
If I use my credit card for these positive cash flow properties I can use the profits to pay off the credit card quickly, thus not being affected by the high interest rates.
In general, you’d only use your investment cards for the smaller items, like sheriff’s commissions, transfer duties, builder’s material and even the refurbishment costs.
What I really love about credit cards is that you can negotiate with the banks.
I have friends who have interest rates of 25%, and others that are just above prime, and they have the same affordability!
Remember, as Donald Trump once said, “You don’t get what you deserve, you get what you negotiate”.
Whatever your interest rate is today, it can be improved, just phone the bank(s) and negotiate.
Once you use your credit card on a regular basis, and pay it off regularly, the banks will begin to reward you.
For example, if you use your credit card for a R100,000 refurbishment, and if within 6 months of the deal you pay it off the banks will reward you (often with miles).
I know of other investors who have paid full flights to holiday destinations for themselves and their families because of the rewards they’ve received using their credit cards (Figi, I hope you are ready!)
When using a credit card, you’re not using your own money, but rather the banks money.
Remember that buying a liability with your credit card is wrong, and will lead you down the path of financial instability. Use your credit card wisely and for assets only.
Using your credit card will also build your credit profile which is what the banks use and reference when they loan you money.
Property Finance Trick #4: Crowd Funding
Let’s say you find a property that requires an investment of R1 million in total (including renovations and all fees), but you only have R200,000 on hand.
You’ve also been bonded to the maximum and the banks won’t return your phone calls.
How can you raise the finance?
Imagine you have four friends and they all have R200,000, like you, and they want to get into the property market to diversify their investment portfolios.
You’re able to setup a PTY Ltd company and pull everyone’s money into an investment pot.
This means that you and your four friends are in a company, and using the R1 million deposited you can buy a property in the company’s name.
Let’s say that after renovating the property you sell it for R1.2 million.
You can then reinvest that money into another deal, or you can pay out the profits to the company shareholders (IE your friends), and use your profit to go at it on your own.
You have to keep in mind that when you’re investing other people’s money there are many legal boxes that need to be checked.
You will have to follow the parameters set out by FCA and it is strongly recommended that your attorney helps you setup the legalities behind your PTY.
The Easy Way To Use Other People’s Money To Build Your Property Empire
If you’ve ever found yourself thinking “I don’t have enough money to invest in property”, be glad you stumbled upon this formula.
I’ve been using it for years to build my wealth through property, and you can too!
Remember, there are four specific places you can source other people’s money to fund your property investments:
- Joint Venture Partnerships
- Seller Financing
- Credit Cards
- Crowd Funding
There are always ways to find money, so don’t let that stop you from investing in a good property deal!
Network with people around you and put yourself in the right circles.
Remember, find the deal and the money will come.
Until next time, be bold and go build that property portfolio.
Analyst, The SA Property Investor
The Money Lab