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Are the days of using “OPM” a thing of the past?

By
Real Estate Broker/Owner with Richard Weisser Realty

Are the days of using “OPM” a thing of the past?During the hectic heyday of the real estate boom, many financial gurus touted the tenet of using “OPM” for investments.

Using “Other People’s Money” became standard practice of the day, with the theory being that as long as one did not use their own cash reserves, the downside risks were minimalized.

As it turns out, that was exactly the case. When push came to shove many “investors” simply threw up their hands and walked away. The “other people” took the brunt of the financial assault.

And while many love to portray the mortgage banks as the “Sheriff of Nottingham” and relish the notion of these institutions getting their “come-uppance,” the fact is that most of the paper was sold to various investors that ranged anywhere from mutual fund to 401Ks.

Bank executives are getting raises and bonuses. Security investors are losing their shirts.

If the market is to recover, there must be money available to lend.

I can’t help but wonder if the supply will be able to meet the demand.

Comments (26)

Richard Weisser
Richard Weisser Realty - Newnan, GA
Richard Weisser Retired Real Estate Professional

Bryan...

Yes, there is a need to keep the mortgage system working, even if it's going to hurt a little now. Thanks.

Phil...

Ah yes, leverage. Haven't heard that term used very much lately. Thanks so much!

Mike...

We don't see "sweat equity" so much these days, so we? Thanks!

Mar 08, 2012 09:59 AM
Joy Daniels
Joy Daniels Real Estate Group, Ltd. - Harrisburg, PA

Do other people have money?  :)  Very thought provoking post - thanks!

Mar 08, 2012 12:28 PM
Patricia Kennedy
RLAH@Properties - Washington, DC
Home in the Capital

Richard, what goes down must come up - well usually. When it does it will be fun to watch how we could wind up back doing the same old ubre crazy things in the market. 

Mar 08, 2012 12:36 PM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

I can remember when newbie real estate “investors” were encouraged to take cash advances on credit cards to put down payments on homes and flip them for a profit in order to pay the charge of within 30 days or getting their credit card statement in order to avoid additional interest charges. Now there is an investment strategy you don’t see any more.

Mar 08, 2012 12:45 PM
Kathy Clulow
Uxbridge, ON
Trusted For Experience - Respected For Results

Richard - we have always used other peoples money ..... the big difference is we knew we would have to pay it back and always did pay it back.

Mar 08, 2012 01:16 PM
Anthony Daniels
Coldwell Banker - San Francisco, CA
SF Bay Area REO Specialist

OPM has gone the way of OPP.  The 15 minutes are up.

Good post, thanks for sharing it.

Mar 08, 2012 01:25 PM
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley Realtor since 1976; 408-373-4411

Richard,

I believe you already know that for any investment, leverage increases investment returns when the market appreciates and wipes them out fast when the market depreciates.

Very often "OPM" is taxpayer's money.  FNMA and FHLMC (read us taxpayers) have incurred $140B (with a "B") in loses that should rightly be lenders and borrowers loses. Yes that includes all mortgage bond holders including pension funds, mutual funds and even individual retirees' savings.

Mar 08, 2012 01:53 PM
Maria Morton
Platinum Realty - Kansas City, MO
Kansas City Real Estate 816-560-3758

Richard, most investors I know are cash buyers. They like owning the properties free and clear.

Mar 08, 2012 02:25 PM
Lindsey Hasford
Edina Realty - Elk River, MN
Bringing you home...

That's a thinker. I would like to know where 'other people' get their money. :) Maybe they'd just share with me.

Mar 08, 2012 02:30 PM
Carol Zingone
Berkshire Hathaway Home Services Florida Network Realty - Jacksonville Beach, FL
Global Realtor in Jax Beach, FL - ABR, CRS, CIPS

It's a lot tougher to get that OPM these days, and some buyers are simply shocked at the increased documentation requirements.

Mar 08, 2012 07:22 PM
Fernando Herboso - Associate Broker MD, & VA
Maxus Realty Group of Samson Properties - Clarksburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

We are just learning the significance of the letter O in OPM 

I should be called instead  GPM

Government money.

Our taxes are paying for it

 

Mar 08, 2012 07:28 PM
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Richard, I think private money is getting harder to find today. Investors aren't willing to take the risk they once did.

Mar 08, 2012 08:00 PM
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566

You always write short, easy to read posts with great content that makes you think! Kudos!

Mar 08, 2012 08:54 PM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Richard: I think OPM is always part of the equation. It's just that people cannot usually finance a purchase 100% these days. Thanks for the post!

Mar 09, 2012 12:45 AM
Sandy Acevedo
951-290-8588 - Chino Hills, CA
RE/MAX Masters, Inland Empire Homes for Sale

Hi Richard, There is always some type of excuse floating around as to why the banks are not lending. What is it this month?

Mar 09, 2012 01:48 AM
Fred Carver Real Estate Consulant
Retired BC Realtor - Victoria, BC
Accredited Real Estate Consultant

Hi Richard...without OPM, it's hard for even 1st time home buyers to Buy,never mind investors.

Congratulations on your feature.

Mar 09, 2012 02:51 AM
Jon Kolsky
Kolsky Realty & Management - Long Beach, CA
Licensed California Real Estate Broker

I remember a time it was possible to buy apartments and borrow 100% of the purchase price, and 18 months latter get a conventional loan. If the investor purchased correctly, and they were able to get 100%short term financing, they could be in the game with -0- in it! That's right, because the building would appraise for 25% more 18 months latter, the investor ended up having no $ in the game, just loans!!!

It's the same way others went busted, you have to be very careful if you are playing that!

GREAT BLOG! 

Mar 09, 2012 02:59 AM
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Richard,  As usual yours is a well reasoned and articualted post.  I have to believe that the amount of demand is relatively constant and the market will respond by meeting the cash needs of the buyers.

Mar 09, 2012 05:55 AM
Jo Olson
HOMEFRONT Realty - Kettle Falls, WA
Retired - HOMEFRONT Realty @ LAKE Roosevelt

Everyday I have a conversation with clients about the whys, wheres, and hows of the past market and we just all shake our heads and try to do the best we can. I am so over this whole situation and someone needs to figure it out! 

Mar 09, 2012 08:35 AM
1~Judi Barrett
Integrity Real Estate Services 116 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

The days of using OPM seem to be alive and well here..  more than it should be. 

Mar 09, 2012 10:54 AM