You Down With OPM? (Yeah You Know Me!)
For anyone who doesn’t understand the tagline above, there is a song from Naughty By Nature that came out in the 1990s that goes: You down with OPP? And the background singers say: Yeah you know me! Pretty funny, huh? Well, uhh… I feel awkward now. Anyways, lets talk about leveraging with OPM: Other people’s money.
Leveraging is buying a property with other people’s money.
Using the OPM technique will allow you to generate a higher return on investment. You put 20% down on a property and a year later the property increases in value 20%. Your return on investment is 100%! Is there any other investment vehicle that you can leverage yourself to increase your return? Having all your eggs in one basket is also not a good idea. What does this mean? I mean that if you sink all your money into one property and something goes wrong, there is a higher chance you’re going under. If you leverage you can buy multiple properties that you most likely wouldn’t be able to do buy if you were purchasing all cash!
Once you have 50% equity in your house, you are over leveraged. You should sell, refinance, buy a bigger property or more properties. Ever heard of a little thing called the 1031 exchange? The government allows you to sell your property at a PROFIT and tax deferred if you invest the funds from the sale into a more expensive or bigger property.
If you want to discuss more about this feel free to contact me here.
TGN Property Management handles all sorts of real estate assets. We even do single family homes and AirBNB! Please contact us today via phone at 310 623 2704.