Wealth Creation: Other People’s Money (OPM): What the Rich and Rich Have Known for Years
Getting rich is not just about hard work. In fact, hard work has little to do with getting rich. It’s not that I don’t advocate hard work, I do. I love to work hard, but I especially like to see myself and others working smart. I know that getting rich and succeeding is not just the domain of blood, sweat, and tears. I have seen friends, co-workers, and family members go the extra mile for little or no reward.
The cult of hard work, personal sacrifice and the goose that lays the golden eggs
There is a cult of self-sacrifice evident in our culture that ensures you are very busy, working very hard and putting in crazy hours. When it comes to building personal wealth and achieving success, you are the goose that lays the golden eggs. However, you can only put pressure on the goose that lays the golden eggs before she stops laying those golden eggs. Without exception, all Golden Geese will eventually run out of energy, ability, or enthusiasm. Therefore, learning to use other people’s time, money, and skills (i.e., leverage) is a prerequisite to becoming rich, creating wealth, and achieving success.
Other people’s money and leverage
Generally speaking, gaining access to other people’s money (OPM) is a form of leverage that allows you to go beyond the limits of your own resources and instead apply ingenuity to everything you do. In business terms, leverage is the key that differentiates the self-employed who owns a job from the entrepreneur who owns a business. In financial/investment terms, it means gaining access to cash that is not yours to purchase income-producing assets that you control.
What the rich and rich have known for years
The richest people and especially the richest people in the world have known for years how to take advantage of other people’s money. Everyone from Jean Paul Getty, Aristotle Onassis, and Donald Trump have excelled at this number one wealth creation principle. His use of OPM to buy assets is legendary. Onassis, in particular, is known to have obtained contracts to transport ore and oil in ships and tankers that he did not already own and then went to banks to secure the loans to buy the ships and tankers using the contracts. A cheeky and talented negotiator if ever there was one!
People go about building wealth or acquiring assets in different ways based on their backgrounds, past experiences, and what they have been taught or know about money. For the most part, people think that great riches are largely unattainable because of the model or mindset they have about money. What most people don’t understand is that you don’t actually need money to make money. Sure it helps, but what you really need is access to other people’s money to make money.
The benefits of using other people’s money
OPM buys you time; it allows you to do things before you would otherwise be able to do them. It allows you to participate in deals that your own resources do not allow you to do. It allows you to make decisions that you might not otherwise be able to make. It takes the average person many, many years to accumulate wealth or build a business entirely on their own resources. By using the power of other people’s money, you can accelerate the creation of your personal wealth or the growth of a business. Importantly, your personal wealth creation is no longer limited to what you’ve been able to save and invest from your earned income.
Getting High With OPM – Real Estate
Most people’s typical first experience of using other people’s money is when they apply for a mortgage to buy their home. Generally, your down payment combined with your employment contract demonstrating your ability to produce future income is enough to secure a home mortgage loan. Unfortunately, your house isn’t an asset, well it is, but it is the bank’s asset, since they get the proceeds from the advance loan, not you. If you can get a bank to advance you a mortgage loan to buy an investment rental property (an asset) whereby you can keep what is left of the rental income after paying off the mortgage, then you have used other people’s money to buy and assets to produce income. To guarantee this loan, you must prove to the bank that it is a safe bet. Typically, they’ll want to see that you have at least 20% of the purchase price as a down payment and that this asset and other sources generate enough net income to weather any changes in interest rates, rental void periods, etc.
Getting High on OPM – Business
In business, entrepreneurs and business owners gain access to other people’s money when they write a business plan that they present to a business broker or venture capitalist, i.e., investors. This process is known as capital raising. In exchange for the money (known as capital) received, the investor who provided the capital usually receives shares (i.e., equity interest) in the business. You can also borrow money from a bank and the bank is repaid the principal and also receives interest on the loan. It is the job of the business owner to put this capital to good use; produce products or services that generate sales revenue to pay off the loan and, of course, all other business expenses.
Other people’s money is always available and accessible to a greater or lesser extent depending on general market conditions. His first responsibility as an entrepreneur or investor seeking capital is to understand and educate himself on the many sources of OPM and the many deal structures that OPM uses.
Jumping through the window of opportunity
Finally, the main takeaway from all this talk about other people’s money is that instead of telling yourself “I can’t afford to start a business” or “I don’t have the money to invest in that business,” now know that you don’t there are real excuses or limitations. It’s not that using other people’s money is without risk. Like any financial transaction, there are inherent risks. Firstly, you are responsible for repaying the borrowed capital and generally provide an agreed additional return to the investor. However, that is not up for discussion here. The key for now is to realize that you can always gain access to other people’s money to allow you to enter into deals and do things you previously thought were not possible. You can begin to jump through the window of opportunity when it is open…and when you begin to implement this principle of other people’s money in your personal wealth-building and business endeavors, you will begin to realize that it is open! all time!