wikiHow to Leverage a Business With Other People's Money

Have you ever thought about "using Other People's Money: OPM" so that you could buy a business and re-invent a business/or real estate and also realized that customers and renters pay for it all for you if structured so.

Buy a business using none or very little of your own money. This article may amaze you as you see the power and possible simplicity of leveraging your business ownership -- for instance by finding a motivated seller who will take little or nothing down and do owner financing (and carry a lien) upon the business and properties, for one example.

The following are suggestions based on some U.S.A. processes, and is an outline of how it could work, and some considerations for such an opportunity to succeed would include your finding out what are the exact applicable laws and regulations that you must comply with in your area in the jurisdictions of your state and local courts and laws -- which are probably quite different from place to place.


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    Read books and articles about using other people's money to leverage a business, e-Commerce, iMarketing/publishing, or real estate, for example: Barry Lenson Executive Editor at Trump University wrote:from "use other people's money" page at " the world of real estate investing, where it is possible to apply leverage in all kinds of different situations, it can be a very smart thing to do." You stand on the shoulders of the previous generation in some businesses, or families.
    • Trump U. tells a story about "Ben" who went to a friend and said something like, "If you lend me $40,000 to make a down payment on a house and renovate it, I will handle all the details for you (and discussed how they would share the cost and profit)."
      • Well, it indicates that he found a property, negotiated and made the purchase, supervised the renovation and sold it so that they split a profit after costs were paid, making about $35,000 each on their first joint venture. They did another deal, then Ben went out on his own. It does not mention how long that took.
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    Define leverage: the use of credit to enhance one's speculative capacity Merriam-Webster Online Dictionary
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    Buy the business or real property in your name or corporate name. Make sure that:
    • You are getting a good deal (paying less than market value, as it stands) in a stable or improving/or transitional location (edgy, but luck may go either way(?); it probably does not depend just on you or depends on moving faster than others, etc. - caution/caveat).
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    Make your profit at time of your purchase (meaning loaded with potential, or not) by how you buy, with what plans and your creativeness. So that, there is potential to increase the value quite significantly by fixing up, with repairs or more extensively remodeling, re-inventing the product, or the market -- dressing up with some inexpensive improvements, or that more expensive ones can/will increase value quite well.
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    Visualize that your customers and/or your renters pay for the deal for you -- you, therefore, would need little money to own your business or property. Consider holding your purchase so that the business income or rents pay it off for you over the course of time.
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    Make a strong profit possible, and do it to succeed. Do you see that when you own a business or rental property that you must make a "positive cash flow" (call it a profit) to have the business pay for itself, or fail, fall prey to lack of equity and appreciation, or not following through by you or ones depended upon.
    • If you do not make a positive cash flow, significant profit, you might still stay in business if the reason that there is "not a good profit" is called a "loss on paper," ie: after all expenses of the business are paid and depreciation is figured on the equipment, improvements and fixtures you are still able to exist, well or not so well, ie: "loving", eating beans and rice, living in a back-room or attic.
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    Be realistic, but not paralyzed by negativity or over-concern. Realize that without a good profit: then there is a cruel-risk for you, the seller and/or the lender (that's why conventional financing for an inexperienced owner is difficult or even impossible). So then a motivated seller becomes highly desirable to put you in the best position to profit enough.
    • You most likely would not have enough operating capital to reinvest in new equipment, improvements and to grow the company -- unless the customers pay a hefty amount in advance, down payment or such.
    • In rentals (leases) you receive security deposits and some rent paid in advance by new renters, but you often have to pay back all of that including the security deposits if renters have maintained the property except for ordinary wear and tear, and they leave it clean.
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    Compare this leveraging idea to issuing stock in a market economy based on stock markets where the stock investors "pay for the business" for the corporation and common stock investors have no ownership in the company, as such, but must sell the stock to other investors.
    • In this case the seller or lender is paid off by funds received from common people as your customers and/or renters "similar to common-stock investors" having no ownership rights as money is paid to you and you pay the seller.
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    Realize that you could lose it all -- like any investors when you invest time and money in a business or real estate; you may lose on the business or the real estate investment -- and sellers may repossess the business, or investors foreclose on your property, if you can not pay your commitment and do not have adequate operating funds.
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    Issue stock, perhaps, when your idea is developed, as your business succeeds, then you, the lender and seller may profit and pay off loans by issuing, selling stock, ie: "selling paper".
    • So your customers and renters being dependable and prompt to pay you is so very important, just like stock investors buying issues of stocks at a good price for that stock market is necessary to that issuing corporation.
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    Realize that if your leveraged business is being a "landlord", that you may develop this into either:
    1. A real estate type of "business," with multiple properties, and managing your rentals; or,
    2. Remain as an "amateur, individual" with a small investment in real estate, and then it may not really be a business as such but more like a "hobby," a sideline.
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    Finance through the seller, owner financing, is a probable way of leveraging which would mean that the owner sells a business or property to you and finances it for you with a down payment and a monthly payment -- examples:
    • Owner is retiring and moving to the retirement home or a farm and wants a monthly income, and little or no responsibility for managing and up-keep (for the seller).
    • Owner is moving to another county, state, or province.
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    Find conventional or investor financing and so borrow your money from a financial institution, if you can pay a large down payment.
    • Perhaps you get a mortgage company to finance and set the terms that you must accept on the real estate.
    • Long term financing is not commonly done by banks. Banks are usually not mortgage companies.
    • You may be able to find a partner to invest with you, if you can find someone who would own part of the company for example. Partners as investors are often leery of financing such deals for new inexperienced owners.
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    Check consumer laws, if you are buying "personal property" which will become business materials as an individual, as a proprietor -- not as a corporation -- you may have consumer rights that protect you in some states or countries for 72 hours of some such period of time, as consumer protection, to vary items quickly (without procrastinating).
    • This may depend on how the paper work or contract is written, if it is sold all together as a business (as a "bundle") or in pieces as individual items.
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    Get a precise list of any/all materials, stock merchandise, furniture and/or equipment that go to you as part of the business -- or else, you may have problems knowing what you are buying or have bought.
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    Know that fixtures attached to the property are part of the real estate in many countries, but unattached equipment can be removed, and you could be surprised by what you thought was part of the deal as opposed to what is and is not given over to you by the previous owner/lien holder.
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    Be sure to get the seller to furnish you a "warranty deed", or whatever that deed is called in you area, if real estate rental property is involved.
    • The warranty deed in general means that the seller warranties (guarantees) having the right to transfer title of the ownership of real estate. Merriam Webster Online Dictionary warranty deed
    • Seller sometimes will pay for the warranty deed, legal work and also owner finance it for you, if they are motivated and you seem like a good risk and impress them as being a good worker, and a good manager.
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    Register the deed immediately and get legal work verified as part of the deal using your attorney or a title company, if real estate is involved.
    • There are title companies in the USA that specialize in getting deed and title papers correctly made out and ready for closing, ready to sign for the parties for the title to real property to be passed to the new owner (yourself).
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    Take possession of the property as you must not allow renters to continue living there without paying you, nor paying to the old owner, nor allow another operator to retain the business or property, nor even have the seller to remain in possession of the business or property.
    • The seller might become a temporary employee of "your company" (consultant) and train you, if that is part of the deal. That is risky, of course. You may get bossed around, and it could turn out to be like a scam if the seller "hangs in there."
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    Check the laws in your particular country or state to find out about real estate title insurance through your title company. Title companies make sure that the real estate is under (or is brought into condition of) "clear title," so that all liens are paid off at the the closing including paying back taxes.
    • Require title insurance policy to be part of the closing (passing title) to cover the risk that the real estate property title might be bad, ie if:
    • Seller did not have title or clear title due to unsatisfied (uncleared) liens of lenders or taxing authorities, etc.; or
    • A mistake or even a fraud (misrepresentation) were involved for example.
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    Urgently get any real property warranty deed recorded and registered in your name and put on the county tax rolls to be sure you are correctly shown as the legal owner. Register the business in your name as an individual at the county courthouse, or license and register a corporate name at the state level; check the laws of your locale.
    • You may have to hold various licenses, pay fees and taxes as the owner of some kinds of business, to legally operate or collect taxes, etc. Of course some business, such as restaurants, have additional matters to comply with because of state and local health department laws and regulations.
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    Have your lawyer check contracts, financing (liens) and any real estate deed(s) for standard and desired covenants (the correct legal agreements) and avoid some unusual deal: One is, the right to pay-off early with or without penalty, or the owner-financier may have put in no early pay-off to assure retirement income flow to the seller, tying your hands!
    • Caution: restrictions placed on real estate by covenants in the deed can restrict how and the purpose for which the land and improvements may be used, regardless of zoning. Contract can throw out uses that are legal but disallowed in the contract!
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    Get any business licenses required for a business, and check with the state to get set up to collect and pay sales taxes if retail is involved, and find out about business taxes which may be more demanding (like estimating income and paying quarterly taxes, etc.).
    • Publishing and general commercial printing companies are one kind of business and religions, too, that are not licensed under USA and U.S. state laws because of the U.S. Bill of Rights which says congress shall make no law restricting the freedom of the press, or religion. This is an important issue to consider. Some persons create either or both combined to do whatever without a license, yet courts and laws do assign certain responsibilities and protections of the public as well, ie: against fraud or other crimes.
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    Beware of possible squatters who may "own property" by having been allowed to hold adverse possession by previous owners, for the statute of limitations. Sounds wrong, but possession is a large part of ownership over time after the intruder or defaulting party is known but allowed to stay; laws vary from state to state.


  • Some business, and accounting teachers and investment advisers sometimes may help their students or clients to understand how to use leverage to buy a business or rentals:
  • Visualize a race to the county courthouse to record the deed or the business purchase. Whoever is the first to "record" the deed" of real estate is "the owner."
    • In the case of fraud a seller of real estate could possibly sell to two or more different buyers on the same day, and then it is not the one who paid first who is owner, but instead it is the one who gets the deed recorded first at the courthouse who is the new owner legally.
  • Individual proprietorship (not incorporated) is usually handled in the USA by registering at the county courthouse as "d.b.a. -- doing business as "______________ Company" (company name) but it is not "Ltd", ie: not limited liability. You might lose your other property including your shirt for unpaid taxes, or have liens placed on all your property in a lawsuit for failing to pay your debt, depending on laws and the contract terms that you signed.
  • "A gentleman's(?) deal" -- may be worth about as much as the paper it is "not" written upon -- with an oral, spoken contract, and a handshake -- also is not enforceable for amounts larger than a few thousand dollars and only for the amount that can be enforced in lower, justice of the peace or municipal types of courts, depending on the laws in your area. And, generally, no court enforces oral agreements of any kind above a certain sum.
  • Avoid second liens for borrowed money with a lien on "your other collateral (secondary security)."
  • In the USA "informal, verbal, unwritten agreements" for real estate are not enforceable. Law requires that real estate leases and sales be in writing.
  • It is recommended to get insurance, or be bonded if that applies, and to be incorporated to have limited liability, but that costs money if this is a very small business and/or small real property and you have little or no money nor other property of any kind to lose.
  • With only a lien on the "property being purchased (primary security)."
  • If you intend to sale the business or property, consider holding each property for the legal period which might be two years (check the state and national tax laws about business and real estate "dealers") to keep from being considered a dealer, and then no longer being under the laws and regulations of an individual, amateur seller with a sideline or hobby of investing in, holding and selling such things.
    • For example, the owner can sell a car or truck, but you would be required to be an automobile licensed dealer and follow the laws for dealers if you were repeatedly buying and selling vehicles.

Suggestions About Liens

  • Usually only improved land (with commercial buildings, houses or apartments) will pay for itself.
  • Define lien(s) (from Anglo-French, "loyen bond" to bind) — 1: a charge placed upon real [real estate] OR personal property for the satisfaction [if necessary] of some debt OR duty ordinarily arising by operation of law [ie: contract, agreement or court judgment], 2: the security interest created by a mortgage
  • Be sure to research to understand about the lien to understand how it is meant to restrict the owner(s) right to sell and prevent passing good title without first or at the same time paying off such liens on the real property (including second or third liens or improvements and fixtures, etc.);
    • The purchaser (new owner) is usually legally or contractually required to maintain and repair all properties purchased including general fixtures as they are part of the property, like any real improvements (building, driveway, etc.)
      • Be careful how you attach your personal property and equipment to the building, such as to plumbing or utilities or you could legally lose it to the lien holders if the real estate lien were foreclosed -- but not if merely connected by hoses, or plugged in as electrical/electronic items. Fixed item (fixture) means an object attached to real estate becomes part of real estate and/or part of the improvements to real estate property, and is not to be removed and is to be maintained to protect the lien holder:
    • Automobile-loan lien -- placed on property in the USA -- is a security interest protecting the rights of one owed money, but the one who owes the money may possess the vehicle until repossessed by the lien holder but not legally sell title to the vehicle until the lien is removed;
    • Mechanics lien -- includes, according to law, that an automobile and perhaps other property in a vehicle may be held until towing, storage and the price of work are paid in full or as agreed between the parties;


  • The first party (the original seller) could repossess the business from your middleman, and you could be "out the door," or perhaps the seller would put you in place of the defaulting second party, but you could be at their mercy since you were not directly contracted to them.
  • Some deals are third party transactions called "wrap around financing" where the seller is still buying what he is selling to you (reselling it). This can be totally great and legal in real estate or a business where you pay your seller and then in turn your seller pays his original seller.
    • A wrap around deal is risky. You must trust the seller to pay the original owner. You may be able to trust them in such a case because they would lose their monthly income and lose their equity and interest in the property if they did not pay the first party.
    • That may be very practical, if you invest little in the business except your time and energy, if you could not afford to buy the business or property without this arrangement.
    • Also, it's possible that later you can buy your seller out and pay directly to the original seller or get financing. That is a thought to consider and a reason to make a good impression to the first and second parties in the original deal that you wrapped around.
  • Somebody might compare that to a pyramid "scheme," but it is probably legal as long as it is all in writing and registered at the courthouse.
  • You as a third party in "wrap around financing" are in a situation where the second party who sold to you might even die or become incapacitated -- so keep in close touch if possible to be sure your seller is in good health and in good capacity to handle their business, ie: not had a stroke or other health or financial problems.
  • There may be periods of economic optimism and excessive use of leverage, over leveraging. For example the sub-prime crisis included financing homes with little or no down payment, in hope that the price of the assets (the property in this case) will increase and even over leveraged deals could be refinanced or sold for a profit.
  • Raw land is a specialty which should be avoided unless you know and understand development, subdividing and selling of land. Raw land usually produces no income, but has taxes, insurance and other costs of making improvements, maintenance (mowing, etc.) legal and other costs of developing it.

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