Know the Real Costs of Investing with Other People’s Money

Networking events are filled with people eager to find deals or to find cash for their deals. In fact, I would say the majority attending these events are looking for cash investors. And why not invest in using other people’s money? It’s easier to scale, reduces your risk, and boosts your returns with OPM. Having been on this journey for over a year I realised what it really means to raise capital and the major responsibility it carries rather than how to do it.

Where Borrowed Capital Really Comes From 

Where would you go if you needed to raise money? People that have sizeable savings usually have it because they worked hard, earned more money than they spent, and put some away for retirement. This is the scenario that the typical person does; get up every day, and go to work for 8-12 hours a day, 5-7 days a week, for 30-50 years. They then take a small portion of that income and place it aside for the day they are able to retire. Maybe invest in a mutual fund. That is the norm and the reality of how the average person saves for retirement. And that is exactly the money that most people raising money will be asking for.

We trade our time for the capital we have, and then we stash away a little bit of it in hopes the pot will be big enough the day we get to retirement. Understanding the magnitude of the responsibility that raising capital carries is probably the most misunderstood topic. Why? because most educational workshops only have time to focus on the fundamentals; primarily finding the deal, calculating the ROI, and the exit plan. Being able to attract OPM is all about relationships and that is built over time.

So Whats the Big Deal?

It’s very easy early on to understand the process and benefits, but I simply did not want the responsibility. If I borrow 100k from someone or several someones, what am I really taking? How much time did that person trade to earn that 100k? Maybe they worked 5 years to save that much, maybe 10, or maybe that is their full life’s savings. This person has not entrusted me with money in an account; they have entrusted me with a piece of their life and usually a large one. My 1st rental property was an introduction to this fact. The property I acquired was from a retired businesswoman, let’s call her Sally, who bought the property with her life savings as an investment. The three-bedroom apartment was to provide her with passive income for the next several years. It just so happens that when I met her she had hit some financial troubles and was desperate to sell her property. After having spoken to her I knew that if I were to buy the property from her she would be losing quite a bit of retirement savings. So I worked out a way where she could still maintain the property as an equity investor and have the cash she needed to resolve her debts. In about 2-3 years she would have made most of her savings back and if I sold the property we would both walk away with a healthy some of the cash. Not only am I protecting her investment but together we have worked to make our cash work harder for us. The way I view capital and I hope others will is what was given up for that capital rather than just numbers on a bank statement. If I were to borrow money from Sally, how many experiences with her daughter growing up did she sacrifice to make sure he had that? If I were to lose it, how much more would she have to give up to make up for the loss? When you take someone’s money, you are taking the portion of their life they traded to earn that capital. My business model is focused on raising capital from private investors and deploying it into real estate investments that are managed by a rock star team. I realised at the age of 31 that I had hit a ceiling with my 9 to 5 job. Having studied for a few years and has worked for several companies along the way I had come to the realisation that I would need to save a whole lot more to retire before I turned fifty and there was no way I was going to it using that model When I look at my parents having their dream retirement ripped away from them even though they did everything right to get there. After inflation, fees, and bad advice, they did everything they were told, and the reality is, they fell short of the dreams they sought. Now with all their saving spent they are dependent on their government pension. This is happening by tens of thousands per day a large majority of the population has come from the same system and is beginning to retire. So now despite doing everything right, they are not getting the life they imagined. They are having to work long and miss more experiences. That is when I realised how selfish I would be to not make a change in my life and use my skills to create a life with financial success and self – fulfillment. To me, self – fulfillment is how I can be the best I can be while also adding value to others to do the same. In my case, I believe that is being able to deploy capital and make it grow in order to help others do good with money. I’m of the belief that great investment starts with a great team and by that I mean the investment I search for every day are people who share the same values and vision that I have that where true value can be built.

The Meaning of Money

I now raise money because of the responsibility it carries and the good I can spread by turning money into more money. However, the money you a borrowing carries significant meaning. It is not numbers in a bank statement; it is pieces of that person’s life experiences they traded to earn that capital and also opportunity to give them the chance to have more of them, the opportunity to help others. I have never been driven by money, but I do believe in the good money can do, and it took me a while, but I realise now the good is exponential when capital is viewed and handled correctly.

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