Other people's money and your payday.
There are a number of applications of OPM concepts and leverage which can earn a worthwhile return for the prudent investor. One example might be in finding a stressed real estate owner who would allow you to take over his/her existing loan to free them from the debt. You might even pay the stressed owner a minimal amount for their equity in exchange for their relief of debt. It preserves their credit rating and allows you to acquire a property for very little or nothing down. I might add, using other people's money for investments only works if you maintain your good credit standing.
The application of OPM can be used in business and numerous other forms of investment. If a bank can take your savings account money and pay you four percent while lending the same money for up to 35 percent, you can also. Circumvent the bank and become a lender. There are contractors, small business owners, home buyers, and many others who will pay a healthy percentage for use of your money. Always make short term loans. It does no good to tie up your money in one place – keep it turning over. $1,000.00 at 35% for three months tops. You will make $350.00 off of your $1,000.00 which you have borrowed at 10% a.p.r. from the bank. Pay the bank loan off at their 1.2 % per month rate, 3mo.x1.2% = $36.00 total payoff = $1,36.00. - you profited $314.00 in three months using OPM. Your credit rating is maintained as excellent because you paid it off early. Turn around and repeat the process. Within one year you can be using $1,000.00 of your own money plus $1,000.00 OPM, doubling your profits while not increasing your expense. Borrow equal to your own money. This sets the leverage fulcrum so it may apply double the pressure on the gain or profits. The more pressure exerted, the more gain received.
When I was in the Air Force, I loaned money to guys who thought they had needs greater than their pay. They would always run out of money a week before payday. They always needed cigarettes or gas or something for a girl, they were willing to pay 100% for a one week loan. I loaned 10 dollars for 20 dollars to be paid in one week. I stood at the head of the pay line and collected each pay day. Opportunity knocks, if you are not willing to open the door, it will never come in. You have to attune yourself by keeping your eyes and ears open for the sounds, look and feel of opportunity. She's a fickle mistress who will leave you for another if you don't attend to her properly. After a few months, I used that money to buy a car.
Ernest Henderson, of the Sheraton Hotel Chain, authored an interesting book telling how he and his brother George along with a former roommate, Bob Moore, turned $1,000.00 of personal money and added leverage to build a billion dollar empire. How could they accomplish such a thing? Chiefly by using the concept of using other people's money as leverage. It's true, at the end of World War 1, the three men had only $1,000.00 between them. They considered such a sum a fortune, even though it started shrinking immediately after a months advance rent payment.
Keeping overhead to a minimum, they set up shop in a Boston ground floor office, proclaiming themselves as bankers and dealers in foreign exchange. (there were no Banking laws in those days) The foreign exchange business led them into the import-export business and distribution of surplus binoculars once destined for the German Army. (seizing opportunity)
As they looked around for even more lucrative opportunities, Henderson soon entered the new era of radio, underselling firms that were not cost-conscious and forward looking. One thing led to another, and by 1933, the Sheraton Hotel Chain was born.
Another application of OPM and leverage is in stock purchases. Assume that you have savings amounting to $5,000.00. You wish to purchase $10,000.00 worth of stock, and in order to do so, you must borrow the remaining $5,000.00; you are renting this borrowed $5,000.00 while your savings, in turn, represents an equity interest. Financial maturity and mental competence are the necessary ingredients. If the stock you have bought appreciates 50% in a year, then it would be worth $15,000.00 . From this, you deduct your borrowed $5,000.00 and the interest paid on it – say $400.00 for an interest rate of 8% leaving you with a net worth of $9,600.00. you have nearly doubled your holdings, earning a return of 92% in one year.
Now you and I both know this example simply wouldn't happen. But, if you did the exact same thing only this time lend the $10,000.00 to a small business owner or contractor. Many small businesses need funding but don't have the track record to satisfy a bank. They have a great idea, product and expertise, but commercial lenders won't stake them.
I have a friend who provides venture capital for small businesses. He sets up the business management and provides consultation for, repayment and 10% of the business. Need I say, he is a very wealthy man. He uses money to fund people in need. These are people who could not go to a bank because they do not fit the banks criteria. In return for his services, he is paid handsomely. I ask him why he would risk his money on new business start ups. He told me, “someone has to care about another man's dream.” He has made a lot of people wealthy and has received a certain amount of satisfaction while getting very wealthy himself.
The thing is, leveraging money is not a new frontier, quit buying things that depreciate and put your money to work. It's a tool like any other tool. Use it to plant, cultivate and harvest riches. Think – increase – multiply – growth – gain – profits and most of all wealth.
Happy Trails
Donald Yates, Former Director of Business and Leadership Development for Imperial Research, is now retired but continues to assist young people in engaging life through self discovery, Life course planning, intuitiveness and fulfillment. Learn how you can build a powerful organization of your own. To learn more, visit
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