I have heard of this phrased such as "OPM" -- basically, "other people's money."

It's something said that, if you don't have the funds necessary to invest, use someone else's money.

What does this really mean though, and how does it differ from a loan or credit of some sort?

I have heard this used in real-estate infomercials, blogs/speech, business workshops, etc. I have never really understood what this means exactly, and how it would work.

I know this is not the same as short-calling, i.e., investing with "leverage" or other such means.

Leveraged investing is for a whole different question than using other people's money for investment-specific or even non-investing purposes. Does "OPM" imply a loan of some sort, and what is expected to be accomplished here? I'd imagine that, if investing with "OBM" is the same as a loan, then it would incur debt and be a new obstacle for a person. How would it be of any advantage then?

The only reason I can see where this would make sense is if the person using "OPM" to invest was intending on making big returns quickly. If the returns were slow, wouldn't they invest their own money then? It only sounds like it makes sense when one anticipates bigger returns from bigger investments.

So, to put it shortly, what are the advantages and purposes of investing using "OPM" over ... not?

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    Typically, when you invest someone else's money you take a management fee regardless of your performance. When you read news about Investor X made a billion dollars shorting the British pound, the investment dollars probably included someone else's money, and Investor X didn't actually make a billion dollars for themself, but rather part of the billion related to their personal invested money, and a management fee. – quid Mar 8 '17 at 1:25
  • From my limited understanding, it's very risky: uk.businessinsider.com/… – ʰᵈˑ Mar 8 '17 at 14:31

Basically, you either borrow money, or get other people to invest in your business by buying stock or something analogous.

Sometimes you can get people to "park" money with you. For example, many people deposit money in a bank checking account. They don't get any interest or other profit from this, they just do it because the bank is a convenient place to store their money. The bank then loans some percentage of this money out and keeps the interest.

I don't doubt that people have come up with more clever ways to use other people's money.

Borrowing money for an investment or business venture is risky because if you lose money, you may be unable to pay it back.

On the other hand, investors expect a share of the profit, not just a fixed interest rate.

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You can either borrow money... credit card, line of credit, re-finance your home, home equity line of credit, loan, mortgage, etc.

Or you have other invest in your company as equity. They will contribute $X to get Y% of your company and get Z% of the profits. Note amount of profits does not necessarily have to equate to percentage owned. This makes sense if they are a passive investor, where they just come up with the money and you do all the work. Also voting rights in a company does not have to equate to percentage owned either.

You can also have a combination of equity and debt. If you have investors, you would need to figure out whether the investor will personally guarantee the debt of your company - recourse vs non-recourse. If they have more risk, they will want more of a return.

One last way to do it is crowdfunding, similar to what people do on Kickstarter. Supporters/customers come up with the money, then you deliver the product. Consulting practices do something similar with the concept of retainers.

Best of luck.

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