So, you’ve heard about OPM, or Other People’s Money, but you’re still not sure exactly what it is. Luckily, today’s blog will answer that question.

Like I’ve said before, I love answering your questions because it helps us get closer to one another. It helps me to understand what you need and ultimately helps me provide you the value you’re looking for. For example, we’ve talked about exit strategies in a previous video.

We’ve answered questions from our Facebook, Twitter, and Instagram pages, but today we’re answering one from our YouTube page. The question was, “I want to buy and hold OPM. Can you please dive into this? How and at what point does it work for you? How do you set up the financing so you can return the interest to the lender faster than you can while making cashflow.”

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Once again, thank you so much for asking the question. First, I think it’s important to take a step back so people understand what OPM is and how you can potentially use it.

OPM is exactly what it sounds like: It’s other people’s money. It comes from a place outside of you, and it is cash that you can use for other things. For example, credits cards are technically OPM because it’s not money you currently have, but it is cash that you can use on your behalf. However, this is considered bad debt, and it’s important to stay away from this. You don’t want to use money that isn’t putting additional cash in your pocket.

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Another form of OPM is something like a mortgage. We’ve talked in the past about whether you should pay for something in cash on your own, or whether you want to use leverage. There are reasons for both, but it’s important to realize this is considered good debt because you are using it to purchase assets, which ultimately puts more money in your pocket.

However, please note that banks will only loan you so much money, no matter how much money you make. This is so banks can minimize their risk. When you run out of money from banks, that’s when you go to other people, like friends and family, in order to raise capital. This is when OPM really comes into play. At this point, it’s important to take a look at your philosophy, your opportunity, your location, your team, and all those factors so it creates more value to your potential investor than the amount of money they will be putting in. When you create value for your investor, you will increase your chances of gaining access to other people’s money.

The other part of the question was, “How do you make sure you’re creating or gaining access to other people’s money in a way that ensures you can pay them back?” Let me answer that right up front: It depends. I don’t know if you’ll like that answer or not, but it’s true. One of the best ways I’ve ever heard this explained was from Ken McElroy, who is one of the Rich Dad advisors. He says that no matter what your project is, you should always think about the return you’re going to give your investor. At a minimum, your project needs to produce that amount. When you keep your investors happy, you can continue helping each other.

So, I’ll use an example. Let’s make this concrete. Imagine that you want to raise $1 million of other people’s money. There are some key metrics you’ll need to think about when you do this. Number one, you’ll have to think about the revenue your project will create. Then, you have to subtract all the operating expenses it will cost you. That leaves you with your net operating income. Once you know that, you have to think about what you owe your investors. Say they want a 5% return over time, that means you need to create at least $50,000 to be able to pay them eventually. Once you subtract this figure, you have Cash After Debt Service, or CADS.

If you’re able to earn this much money, then you’ll be able to create more value for your investor than if that money was just sitting in the bank.

Hopefully this has helped you understand more about OPM. If you want to know more specifics about the process, I suggest you look at the free video series we did in order to take a deeper dive and understand more about what can happen in these situations, whether you’re looking to raise money or invest it yourself.

For those who don’t know me, I’m Billy Keels with KeePon Cashflow. I like to share a number of different strategies and tips for how you can make more money, have control over your free time, and ultimately live with less stress.

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That’s my two cents for today. As always, hasta la próxima.

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