How To Invest Using Other People’s Money

Learn my not-so-secret four-step plan for raising capital

One of my absolute favorite business strategies is using other people’s money (OPM) for my investments. If you’re not familiar with the concept, it’s one of the cornerstones of the Rich Dad philosophy—looking beyond the limits of your own resources and finding sources of money elsewhere.

Sadly, many people only look to their own wallets and bank accounts to fund their businesses and investments. I now know that that’s pure laziness. Don’t worry, I, too, once was lazy. So it can be cured! But how?

[youtube https://www.youtube.com/watch?v=LrSr0u_CAP8]

My Initial OPM Lesson

First, let me share the story of how I came to learn about using other people’s money to leverage my way to financial freedom. It was a dear friend and mentor of mine who told me that only lazy people use their own money. I explained to him that I worked really hard to make my money, and then invested it—how could that be lazy? He responded, “Wouldn’t it take more thinking and more creativity to use someone else’s money instead of your own?” Hmmm, at first that sounded completely unrealistic. But the more I wrestled with the concept in my head, the more I realized he was absolutely right.

You see, it was easy to use my own money to buy whatever asset I had my eye on, but I’d have to learn new skills and strategies to persuade someone else to part with their hard-earned money to put into my investment. Since I’ve never been afraid of hard work and learning, I decided to roll up my sleeves and figure out how to do it.

What I learned (through trial and error) was that raising capital isn’t really the mystery many make it out to be. Lenders and investors (such as banks, private organizations or individuals) simply want to know that they are going to get a healthy return on their investment. So, the key to raising money comes down to four fairly simple factors that will help demonstrate the ROI they are seeking. I’m going to help you cut right to the chase with my efficient formula:

1. Project: What is the project the lender is providing you capital for? What makes this opportunity unique and attractive? Don’t just share the positives—also explain the negatives and how you plan to overcome them.

2. Partners: Who are the key players in the project? In other words, who’s putting the deal together and what is their track record? The experience each partner brings to the table, and thus their expertise, is a big part of the equation.

3. Financing: Show the investor, as accurately as you can, how the project (either a business or investment) will make money. Be realistic and don’t avoid discussing the roadblocks ahead—every business and investment project has problems, so pretending yours won’t makes you look like an amateur. You’ll want to show how much money you’re raising in total, where the money is coming from (private parties, traditional lenders, etc.), the terms of the money being borrowed and how the money will be allocated. Hint: If you even suggest that any of the money raised will be used to pay your salary, doors will close. If you want a paycheck, then go get a job. Potential investors want to know how soon they will get their initial investment back and what their return will be, so they will use all these numbers to determine if your financing structure and terms are attractive.

4. Management: Investors want to know who’s running the day-to-day operations, because this is crucial to the ongoing success of any venture. Explain who they are, their background, how they react under pressure, etc.

I know it can seem intimidating at first, but raising capital does not have to be a long, drawn-out affair. Your pitch to investors should be short and concise. If you can clearly and confidently address each of the four aforementioned issues when looking to raise capital, then the odds of securing the financing you seek are in your favor. Now, the only thing left for you to do is deliver!