How to Get Rich - Use Other Peoples' Money

The use of other people's money, also called financial leverage, can be a great tool for speeding up your growth of wealth.

It can also, however, be a huge disaster if not done properly and at the right times.As with most things in the financial world, become educated before making the jump.

                                                               What is OPM


To use other people's money you simply borrow money from your bank etc. for a promising investment. The money the bank lends you is their clients' money that is invested in savings accounts, term deposits, etc.Hence the term "other peoples' money".

Borrowing to invest can make a lot of sense, especially in today's extremely low interest rate environment. For example, if you could buy an investment that paid you a dividend of around 8% or higher and you paid an interest rate of 4% on your loan, you would then be making a net amount of at least 4% income on other peoples' money. That is the basic principle.

                                                              Risks using OPM


There are extra risks associated with using other peoples' money. For instance, if something happened to your investment and it's value or rate of income drops, you are still on the hook for making your interest payments as well as paying back your original loan amount. The money you could lose will come out of your own pocket, not just a loss on paper.

It is therefore extremely important to choose your investments wisely. For instance, never borrow to invest in something that is not proven to make it's owners income. Always choose an investment that has a history of making regular and preferably increasing income payments and is operating in a market that has good potential for future growth. Yes, your investment must be near perfect for this to work well.

                                                            Types of Investments


Some examples of investments that are well suited to using other peoples' money are as follows :
Revenue Real Estate (always mortgage the property), REITs (Real Estate Investment Trusts), Royalty Trusts,
High Yielding Common Stock, Preferred Stock and High Yield Bonds.

The common element in all of the above types of investment is high income. You will need this high income to make your interest payments. You never want to be paying loan interest out of your own pocket.

There are many types of loans with varying interest rates. Which one you use, or qualify for, will depend on many circumstances. I will be discussing the types of loans in future postings as space permits. Stay Tuned.

As always, I welcome your comments and suggestions for future topics.