Investing in real estate with other people’s money (OPM) can be a powerful wealth-building strategy. By leveraging OPM, investors can purchase investment properties and earn rental income without large upfront capital outlays. The key is finding the right sources of OPM and structuring win-win deals. There are several approaches to tap into OPM for real estate, including hard money loans, private money loans, syndication, crowdfunding, and house hacking. With the proliferation of real estate tech platforms and apps, it’s easier than ever for investors to find OPM sources and manage the entire process digitally. Choosing the right OPM strategy and platform can lead to impressive leveraged returns and a solid pathway to financial freedom.
Hard money loans allow leverage with asset-based lending
Hard money loans are one of the most common sources of OPM for real estate investors. Hard money lenders provide short-term loans secured by the real estate asset itself, rather than the borrower’s creditworthiness. This type of asset-based lending can fund 70-80% of a property’s purchase price or appraised value. The lending criteria is based primarily on the underlying property’s attributes like location, type, condition etc. Hard money carries higher interest rates and requires optimal exit timing since the loans are usually for 6-24 months. There are specialized hard money lending platforms like LendingHome which provide streamlined access to capital through an easy online process. The ability to tap hard money loans allows investors to leverage up and pursue deals that would otherwise be out of reach.
Private money loans tap personal networks for real estate financing
Private money loans involve borrowing from individuals – friends, family, business associates etc. The terms are negotiated privately between the borrower and lender. Private money can come with lower rates and greater flexibility compared to hard money loans. Investors can potentially tap into private money for longer-term financing if the investor has a solid track record and strong rapport with the lender. The key is having a wide network and nurturing win-win relationships. Real estate investing apps like LendingOne provide a structured approach to source private money loans. Investors can create a loan request with property and financing details to match with prospective lenders on the platform looking to earn attractive returns.
Syndication allows pooling capital from passive investors
Real estate syndication is a capital raising model where a sponsor sets up an investment vehicle to pool funds from multiple passive investors. The sponsor sources deals, oversees renovations, manages properties etc while investors contribute equity capital and earn returns but remain passive. Syndication allows tapping OPM to acquire larger properties like multifamily apartment complexes that may be inaccessible to individual investors. The sponsor earns fees and a share of profits. Syndication platforms like CrowdStreet provide an online process to sponsor deals and raise funds electronically. Sponsors can create investor profiles, publish deals, manage funds and simplify transaction paperwork by leveraging the platform’s infrastructure.
Crowdfunding opens up real estate investing to the masses
Real estate crowdfunding makes it easy for anyone to invest in property deals with small amounts of capital. Investors can browse and screen many deals on platforms like Fundrise and choose opportunities meeting their criteria. The platforms handle tasks like due diligence, property management, reporting etc. While typical investment amounts are a few hundred to a few thousand dollars, crowdfunding allows investors to build a diversified portfolio spanning different markets, property types, risk profiles etc. Leveraging OPM via crowdfunding makes real estate investing more accessible. And the ability to invest in chunks as small as $10 on some platforms makes it feasible for nearly anyone to add real estate to their portfolio.
House hacking utilizes OPM for primary residence
House hacking involves a creative approach to buying a 2-4 unit primary residence property where the rental income from extra units covers or exceeds the mortgage. By tapping into mortgage financing, the investor lives rent-free or cashflow positive while building equity and enjoying appreciation. This strategy allows leveraging OPM via mortgage debt to acquire an owner-occupied investment property with little to none of the investor’s own capital. House hacking can provide an entry point into hands-on real estate investing and leading to purchase of further stand-alone properties in the future. Platforms like Doorvest enable investors to search, identify and analyze house hacking opportunities in their target markets.
Tapping into other people’s money can significantly amplify returns and accelerate real estate portfolio growth. Hard money, private money, syndication, crowdfunding and house hacking all allow investors to leverage OPM in different ways. With the rise of real estate focused apps and online platforms, finding and vetting OPM sources is more streamlined than ever. Savvy investors should thoroughly evaluate different OPM models to develop the optimal strategy that matches their investing style, market focus, risk tolerance and long term wealth goals.