When talking about real estate investment, the thought usually comes to mind: “use other people’s money” or as it is known in Suffolk County: “Other People Money” (OPM).
However, this does not mean that in all cases it should be the best option, since there are also cases in which the buyer already has enough capital to make their investment and this also has its advantages.
What is OPM (Other People Money)?
Well, this is basically a leverage strategy, that is, let’s suppose that of the total amount of what the property costs, you only have a part, then, the other part is obtained from “other people”, that is, from mortgage loans.
Does Buying A House In “Cash” (In Cash) Have Advantages?
Of course it has its advantages and one of the main ones is that you do not owe money to anyone.
By buying a house in cash, that is, without the help of a mortgage loan, you get rid of debts, in addition to the fact that, during the purchase process, cash makes your offer more attractive, placing it at the top of the buyers’ list, since sellers prefer to close a deal in cash, since it is much faster. Closing a deal in cash can be a process of a couple of weeks, while closing a deal through a loan can take from 1 to 6 months.
Are There Any Disadvantages To Buying A House In Cash?
Yes, and here we present the most notable ones. The first would be that, when buying a house in cash, your options decrease, with this we mean that you adjust to a budget of what you can buy, which limits “the catalog of house options”, so to speak, of what you can buy.
The second disadvantage is that your investments grow more slowly, because when buying a property in cash, you lose your capital, so, to buy another one you will have to wait until you recover your investment again.
The Advantages Of Buying With OPM
One of the most remarkable advantages of this is that your options expand, because take into account that a percentage of what the property you have chosen costs will be put up by the other party.
The point is that, for this model to work, it is imperative to have a credit history and this must be healthy, otherwise your opportunities to acquire a loan to leverage will be almost nil.
Another advantage is that your investment portfolio expands faster, since by not completely recapitalizing yourself, you can invest in a second or more properties, depending on your investment capacity.
Disadvantages of OPM
As we mentioned above, a healthy credit history is imperative, because if not, you will not be able to obtain a loan. Another disadvantage is that the process takes longer, since the time taken for the procedures can delay the purchase process, causing sellers to give priority to cash offers.
Another issue that you must take into account is that you must move the property quickly so as not to compromise your debt, that is, you must think very carefully about all the aspects that involve the property before buying it, so that you can quickly place the property and that paying off the debt is not a problem.
Buying On Credit Or Cash?
To be honest, there is no right answer to this question, because let’s not forget that real estate is a business and to do good business you must choose the strategy that best suits you.
Do you have any questions or want to know more about which investment model is best for you? Contact us!
