How do I use OPM?

What did your attorney and CPA say about this?

We use OPM all the time. We don't ask for any in advance, like forming a pool of cash from which to invest from. I don't think any of my investors would do such a thing. We keep it simple.
What we do is present the ACTUAL DEAL we have under contract and take them on as equity partners and JV the deal. They like to see a real deal with all the numbers, not give me your money, I will invest and this is the return you may see.
It's funny but we have much more success getting money on fix/flip projects than buy and hold deals!

Good luck!
Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

Allison,

you can be as creative (within legal boundaries) as you like in borrowing PM... you can have a contract between you and your partner that you can draft stating the agreement you have come to...
You get the funds transferred into your account, and you pay your partner a fee for the use of his/her money, or you split the profits 50/50 when you sell the deal... it's up to you and your prospect partner how you want to set it up.
I have borrowed money from my brother and sometimes I pay him a monthly fee, and a balloon payment at the end of the agreed upon term, and sometimes I pay him a lump sum when I refinance the property and pull all the money out.
You will find out that after you do the first deal, and your PML gets his profit, he/she will be more at ease to release the funds to you and trust your real estate investment plans

Oh, yeah, I don't think anyone would just give me money without a deal on the horizon. I'm just getting the lenders interested and on board so that when I have a deal I can bring it to them and have everyhting ready to go quick. I just don't know what to tell them as far as exactly how the transaction works. I was thinking about setting up an LLC per property that the money is to be borrowed for and having an escrow account set up for it so the PML knows where the money is going and I'm not using it for personal expenses. Is that the same thing as a joint venture? I mean is that how you set it up, a joint LLC?

thanks for your help!

You got some good advice here.If you want to borrow from one person you can use a simple Promissory Note.If you are ever thinking about forming a pool of cash like Michael mentioned, I think that can become an issue with the S.E.C. (US Securities and Exchange Commission).I would like to hear from anyone else who knows more about this.

Hello Success 32,

I was reading through your thread, and you bring up some really important concerns and questions. If I may, I’d like to share some of my thoughts and experience if that is ok. Have patience with me, I’m not the best writer.

When I use private lenders I generally send out marketing pieces, but you have to be careful when you market so not to violate any laws or regulations set forth and enforced by The Securities Exchange Commission. The advertising literature must not contain certain elements so it will not be misconstrued as an offer to sell unlicensed securities, if it does you must be licensed.

Also, keep in mind some language can trigger Regulation Z and full disclosure is required on items pertaining to that. I always put a disclaimer on all the literature I send out that basically states in a lot of very carefully chosen words “this is not an offer to sell a security.” If you never attempted to create such a letter get with a professional that know the law, who has the time to help you so that you stay on the right side of the law. I can go in intricate detail. However, if I did this reply to your thread will be the size of a book. I’m going to do you much better at the end of this reply I promise.

As far as how the transaction goes, here is how my transactions work. When the private lender calls and is interested in funding my projects, I always tell them “I currently have no opportunities for them to invest with us. I generally tell them “all our projects are funded relatively fast as this is a very competitive market. However, we will be getting another property in about 2 weeks or so and I can call you if that is ok with you?”

This generally lets them know in no way am I pressured or desperate and they will be competing to loan me money. As the truth of the matter is private money lenders are everywhere, there is NO lack of funding for deals. Speak with confidence but do not be cocky, stay humble. After that, I go look for a property that fits the profile I’m after. When I find it I write my BEST offer first. (This is NOT the market to lowball Jan 2013) When I get the ratified contract, I immediately call that private money lender back and tell them about my latest project and ask them would they like to preview the project with my contractors and me. Get there early with your contractor and do a practice run through.

Do not be nervous or afraid, YOU ARE A TRUE PROFESSIONAL , and you look the part. Speak with confidence and believe in yourself. You have rehearsed the meeting a few times with your contractor at the property and you know your numbers. The first meeting you should always dress like a professional and be yourself. I generally loosen up the mood by saying something funny or talk about the crazy weather briefly as I’m introducing myself and handing them my business card. Don’t worry about small things like the appearance of your car. They are there to find their unemployed money a job.

After having my contractors go through the property intricately with them and go over the construction plan and phases, I generally pull out a professional CMA completed by a BPOR Realtor not a Real Estate Agent. I go on to tell them this project will take 30 – 45 days, be completed in 4 phases and will be listed at $XXX,XXX.

At that time usually if you have a good deal they are willing to discuss terms right at the property, and I always have those numbers ready and printed for them to include the CMA that they can take with them, estimate from the contractor, a net sheet or profit sheet so they can see the numbers, and a copy of the ratified contract to give them. I always negotiate a term of no less than 12 months, I never put any collateral on the line, I never pay any monthly payments, I have negotiated from zero to 3 points and anything from 8% to 15%, and repayment will be in one balloon payment at the end of the term or when the house sells with no early prepayment penalty if the house sells in 3 months. I never pro rate their interest if the house sells quickly; I simply pay them early and pay the full amount of their interest for the 12 month term. Talk about getting them hooked on you and begging to loan you money for your deals!

I contact the Title Company to close the deal and they start the title search and prepare the preliminary Hud 1 for review, order title insurance and prepare the binder. I never use a Real Estate Attorney just my personal preference. It has been my experience title companies are typically less expensive than an attorney and provides the same services, that’s just my personal preference. Title companies typically have attorneys working there preparing the documents, deed, conducting closings or whatever is needed.

Typically a private money lender that is not a beginner and is wise will let their own title company or attorney prepare the mortgage papers or Deed of Trust and agreements. I carefully read the documents they prepare and sign them if I am in agreement. I generally let the private money lender Attorney or Title company hold the construction Budget in their escrow account. Payouts will be paid in usually weekly phases or whenever you schedule them. After the private money investor checks to see if you have completed a certain phase, then you will be paid for that phase. That makes the private money lender feels safe and secure. Only a private money lender that does not know any better deposit the entire construction budget into your corporate company account. If you find one that does, can you please forward me their contact information? (lol)

I promised at the end of this reply I’d do better than just answer some of your questions and I’m going to live up to that promise right now. When it comes to questions and regulations enforced by The Securities Exchange Commission or questions regarding are certain things legal for my business to do or not, I call my attorney. My attorney works for The Securities Exchange Commission and so does yours. I cannot count the hours and number of times they have explained things to me. The Securities Exchange Commission has a department of attorneys that do not mind walking your business through a situation or answering your questions. The department you need to contact is the Small Business Policy Department 202 551 3460. Don’t be intimidated by the voice on the recording.

The answering service will pick up never a live person, this is so they can have the question or concern documented (you understand why right lol?) I always state that I’m thinking about or wondering if I could do this or that and what are the regulations or law regarding that if any. I never would implicate myself by saying I have done something and wonder if its legal. Understand? I hope so lol.

Tips:

1.Write down your questions before you call.

2.You are a professional identify yourself, first, last name and phone number say it clearly and slow, REPEAT IT TWICE. “ Hello this is Bennie Broker calling from 333 504 3333.” REPEAT NAME AND CONTACT TWICE

3.Example question….. “I have several questions regarding xxxxxxxx are there any regulations or laws regarding that? Also I am wondering is it legal for a person or my company to xxxxxxxxxxxxxx and how would I go about exactly doing that? Once again this is Bennie Broker calling from 333 504 3333 Thanks in advance for your return call.”

That number is open 24 hrs a day. You will get a reply from an Attorney that works at The Securities Exchange Cominssion within one business day. Most times I call late at night and they generally call me back in the morning.

I hope this helps in some way. If there is anything I can help you with, just reply. Thanks for letting me reply.

I wish you the best in 2013 DG Family !

*Disclaimer I am not an attorney nor am I offering any professional advice, just some thoughts I am sharing*

you are right on the money. I traditionally do it the way MM does it as we both have a number of investors that are ready to go. However, check with you state as secured transactions are usually not considered securities UNLESS you pool money. We have the money go directly to the title company and do the disbursements at closing. Hope this helps.

Great information that everyone can use! Thanks for all the information!

Thank you so much for ALL that feedback!
Bennie, I am eternally greatful for your generous sharing of important and very valuable information. I am sure there are many of us who will benefit from your post above.
And thank you to everyone who contributed!

I am so proud to be part of such a giving, educated, and supportive community!
Thank you for being my REI Family!

These are good posts, and Bennie is right on. I took a course on PML and was well worth it. Even learned the legalities of asking relatives in other states to borrow me money.
Remember if you advertise that you are looking for the money to invest, that crosses another legal line. Because you may be asked to show a license to do this.
Just be careful how you go about this.
There is good advice on here. Good luck, and it was a good question with good response.

First of all, I can't begin to tell you how many books I've read about this market and how to Capitalize on this Real Estate Opportunity. I haven't heard or read this much information "in detail" about OPM or the SEC, more importantly HOW the transaction work between the Private Lender and myself. This was a HUGE PIECE of the PUZZLE that kept me VERY UNSURE about finding Private Lenders.

The funny part is, in mostly anything I do, I try to put myself in the shoes of the person I'm dealing with. In dealing with OPM or Private Lenders, that's next to IMPOSSIBLE because I've never been in a position to lend say $100k to anyone!...lol. So, what's important to me is learning EXACTLY what to do AFTER you find a Private Lender (meaning how to negotiate the TERMS of our AGREEMENT) is PRICELESS!... Not only in just KNOWING what to do, but also in NOT being taken to the cleaners by a SAVVY Lender. So, to you ALL THANK YOU for your responses.

To Bennie THANK YOU for your Professionalism and Generosity and PLEASE continue to blog...

I'm just bumping this so others can get this information too... I think it is highly valuable.

Youre quite welcome. Thanks for allowing me to participate in the thread.

You are most welcome. It’s difficult trying to wing your way through a transaction. Trust me I've done it before lol. I blew the opportunity several times and learned the lesson from it. It made me better and gave me the experience to be successful at obtaining funding for projects.

Thanks for encouraging me to share and blog; I’m not the greatest writer. If I can ever help or share, let me know. I love to share the little I know.

Happy Investing

I think that you had said on your bio that the reason that you have just been "lurking" (not necessarily your words) here since 2010 is that you are not a good writer.

I am sorry, but I have to beg to differ with that! You have been posting quite a bit in the last few days and your writing is FASCINATING! You made something even as dry as this subject SO interesting! I hung on every word as I have on all your posts that you have been so kind to share.

Please, please, please continue to share your knowledge and your amazing way of explaining the subject.

(Can you tell I am a fan already?)

Karen

Hi,
Since now starting over I have had to really think about how I am going to fund deals since I am operating on limit funds of my own.

The obvious choices are seller financing, transactional funding or private money. Private money is the obvious way to go and from what I have heard, enables you to create terms that work for you.

Have you looked at Patrick Riddles Private Money program? he has this entire program that focuses on sec rules, forms to use for private money.

I am doing the private money monthly program with them and after seeing what it teaches, I have learned alot however not enough to be an expert on the subject.

Hello Karen

Thank you for being so kind to me, you made me smile. Thank you for encouraging me to write and reply more to posts. That’s truly inspiring from you and the others. (Shout out to Micrsoft Word and Spell Check. lol)

Yes, for the last few years I have been the Phantom of the DG Site, hiding under the balcony of topics while eluding the discussion. Then two weeks ago I’m not sure what happened, but I sat down in my recliner put my ear buds in my ear listening to music, dimmed the lights and my fingers just wouldn’t stop typing when I got to Success32 thread. A life time of Real Estate experiences trying to come all out in one post I guess lol. Real Estate is my passion and I guess it’s hard for me to hide that sometimes.

It’s so many people that come here with soooo much experience and knowledge its truly a blessing to be around like minded people who we can share experiences and bounce ideas off each other. I have several favorites here and it’s ironic, but you’re one. Your posts are everywhere I read. Thank you for sharing your experience and helping us all. We appreciate it sincerely. I know I do Karen.

Well said Bennie. Keep posting! Thank you for the responses everyone!