Using Leverage and OPM (Other People's Money)

In finance, Other People's Money or OPM is a slang term that is used to describe financial leverage.? OPM is referred to as borrowed capital to use by someone to increase the potential returns for an investment.?

Learning the power and benefits of leveraging OPM is a more advanced financial strategy, so just reading this puts you ahead of most others with no knowledge or understanding of how this works and the benefits. ?Now when buying a stock or a business, OPM is a lot riskier as if the asset drops in price, so does your leveraged gain or loss.? So this use of OPM makes it riskier when used in that format and that isn’t in my wheel house.?

So, I want to discuss OPM in relation to Mortgages and Real Estate, as that is my Forte!

In real estate, the way that people utilize OPM is with their mortgage loan.? They borrower more money than they have in the bank and put the banks money to work for them.? Did you know, that you can buy a home with as little as 3% - 3.5% Down Payment and use the leverage of the bank’s loan to finance the other 96.5%-97%.? Leverage in this case much money than what you are putting down, which leads to a MUCH larger gain, when values increase in your home.?

Without leverage, you are only earning off the balance in which you have in the bank or investment accounts.? With real estate, you can magnify that same amount substantially higher with the same percentage gains because the balance of the home is much higher than the balance in your account without owning the home.

What does that look for gains in my local market for example?? That would be the question I would be asking...

Well let’s now look at a city like Sacramento, CA to put some perspective and numbers into a scenario for you to understand just how powerful the leverage of OPM would be for someone that is renting and never seen how much more money they can make with OPM versus their own money.

In this photo, I used the example of a Homeowner buying a $500,000 home and what it would look like based off a tool I have access to.? This tool can break down any city in the country and see what their historical appreciation has been since they started tracking it 63 years ago and also forecasts out the next 1 and 5 years based on inventory and AI analytics.? Pretty cool right?!..? I think so!

As you can see the 63 year historical appreciation average for Sacramento is 5.37%.? This means that homes have gone up on average 5.37% every year over that time frame.? You can see why people that have owned real estate have done VERY well now, as they have used OPM and Leverage to earn a much larger gain at a solid return year after year over the long haul.? If you aren’t amazed by that, start from the top and read this again and take in how big a deal that really is.?

Now we have no way of predicting the future, but if you use the average of the past, it gives you a pretty good idea of the future over the long term should generally look like.?

This leads us to the forecasted appreciation section of the picture above on the left, which shows that if you bought a home of $500,000 today, you home would have an estimated $149,456 in appreciation in five years from now based off the yearly averages.?

$149,891 divided by 5yrs = $29,891/year in appreciation gains!!? That’s huge!!

Now there are other gains and benefits in owning a home like paying down your principal balance for five years and tax gains or benefits you were able to use through write offs generated, but I hope you see the big one is the Leverage in using OPM to illustrate the power it has in Real Estate.?

If you found value in this newsletter and know of someone who needs to read it, please share this email with that person and help them with their financial awareness and education.? We all can do a better job of helping one another and sharing knowledge with find valuable with one another and game each other up!

If you see the power of Real Estate and would like to learn more about a specific city or areas appreciation or want take the next step in starting your path to homeownership, I offer FREE consultations and Home Buying Plans to everyone!? I have over 18 years of mortgage experience and know taking the first step to have someone educate you one on one with your specific scenario is where the magic happens.?

So don’t feel shy or timid by whatever hurdle you have in your mind right now from reaching out.? I can and will be able to help you in one way or another and if there is no cost to doing so, you have nothing to lose and everything to gain by having an expert talk and guide you through the best ways to approach using OPM to better you and your family’s financial future.

All the best,

MVB