5. Crowdfunding
Like crowdfunding for start-ups, crowdfunding for real estate allows you to pool your money with other individuals or investors to purchase real estate. This method allows you to purchase a physical property or share of a property, such as splitting profits from a rental property.
You’ll generally need to work with a crowdfunding platform, which may charge management fees, and in some cases, you may need to have a specific amount of capital or network to participate. However, there are several benefits.
Crowdfunding a real estate purchase divides the risk of investment and ownership among multiple investors and can also provide the opportunity to invest in more costly real estate investments, such as large commercial properties that may otherwise be financially out of reach.
6. IRA Partnering
What is one unlikely source of cash you might not have thought about? Your retirement account.
However, you can use other people’s retirement funds to partner in a deal if you both own a self-directed IRA. This specialized retirement vehicle allows you and your partner to purchase real estate directly in your IRA.
A self-directed IRA for real estate is a great option if you want to fund a real estate purchase with your IRA but don’t have enough, as it allows you to avoid a recourse loan.
Keep in mind that all profits and proceeds will flow directly to your self-directed IRAs. But you will also avoid capital gains taxes on all earnings if you both have a Roth IRA.
7. Syndication
Finally, real estate syndication allows multiple investors to raise capital and purchase real estate as a group. In many ways, syndication works much like crowdfunding, but there are generally stricter rules when it comes to who can participate. Often, investors must be considered “accredited” by the IRS, which means they must:
- Have an earned income of $200,000 or more ($300,00 with a spouse),
- Have a network of $1 million or more (with or without their spouse),
Or
- Have a Series 7, 65, or 82 license in good standing
Is Using Other People’s Money for Real Estate a Good Idea?
Whether or not leveraging OPM for real estate is a good idea depends on your personal finances, investment goals, and the type of OPM strategy you choose.
For instance, if you want to take advantage of a real estate opportunity and have a friend or family member willing to assist you, private lending can be a cheaper and faster way to finance the investment. On the contrary, private lending scenarios can leave relationships strained.
Similarly, relying on crowdfunding or syndication can make it easier to invest in larger real estate projects, spreading the risk across multiple investors, but that also means you don’t have complete control over the investment.
Still, OPM investing has many benefits when it comes to opportunity and eligibility. Though some OPM options, like hard money lending, have strict eligibility criteria and higher interest rates, others may make it easier to invest by offering fast access to funds, less stringent eligibility criteria, and lower interest rates.
Always analyze your options before choosing an OPM strategy, making it a point to thoroughly understand the eligibility requirements, borrowing terms, and any other implications it may have on your finances. Speaking with a financial advisor can help you cover your bases.
OPM real estate FAQs
How do I attract private investors for real estate projects?
One of the best ways to attract private investors for a real estate project is doing your homework and gathering all relevant information. Not only does this show that you’ve done due diligence on the project, but it also establishes you as a serious investor and allows others to understand the scope of your project from the start.
Once you’re prepared, you can network with investors in a number of ways, including social media, real estate events, and investing websites. You can also work with a trusted real estate agent or network of agents in the community.
What are the potential risks of using OPM in real estate?
When you use OPM in real estate, you give up at least partial control of your investment, but that’s true whenever you finance real estate with any sort of loan. Other potential risks of OPM real estate depend on the OPM source.
For instance, hard money can leave you vulnerable to higher interest rates and shorter repayment terms. Private money can strain your relationship with friends, family, or your professional network, depending on who is lending the capital.
Is OPM suitable for beginners in real estate investing?
OPM is very suitable for beginner real estate investing because it makes it easy to invest in property without having to have thousands of dollars available. When an OPM real estate investment succeeds, your earnings can bolster your investment power, moving you closer to invest on your own.
