You need to know right from the get-go that, as a real estate option investor, you are not going to have option property deals served up to you on a silver platter by eager sellers and real estate brokers.

In this business, the most profitable option deals are usually the ones that investors create from scratch by identifying an unfulfilled need in their local real estate market and putting a property under option, which best fills the need, and then reselling the option to a buyer, who has a use for the property.

And unlike conventional real estate transactions, which usually involve properties that have been heavily advertised over a period of time, the most profitable types of properties to buy options on are not generally advertised as being for sale. Instead, they are bought through what is known in the real estate trade as an unsolicited offer to purchase.

Why is it a good idea to use other people's money when it comes to buying rental property? Suppose, for example, you buy a $100,000 house with cash and own it free and clear of any mortgage. You have landed a tenant to rent your house for $1,000 per month.

Out of that $1,000, you may have to pay $200 a month in taxes, insurance, maintenance reserves, vacancy reserves, and advertising expenses. Therefore, your positive cash flow is $800 per month. So, what's your return on investment?

Multiply $800 a month by 12 months, and your positive cash flow for the year is $9,600. Then divide $9,600 by the $100,000 cash you paid to buy the house, and that gives you a 9.6 percent rate of return. Not bad, huh? Compare that return with current certificate of deposit (CD) rates (in 2002 CDs are paying between 2 percent and 3 percent), and it seems that owning the house free and clear gives you a pretty decent return on investment.

But consider what your rate of return would be when you leverage other people's money. Say you bought that same $100,000 home but put only $5,000 down and borrowed the remaining $95,000. And for numbers' sake, suppose your positive cash flow is $100 per month. This number may seem small compared to $800 per month in the preceding example, but the goal here is return on investment.

Multiply $100 per month by 12 months, which is $1,200 for the year. Now, here's the magic of OPM. Divide the $1,200 annual cash flow by your $5,000 cash down payment, and you've generated a 24 percent rate of return. And since you put only $5,000 down instead of $100,000, you gain leverage to buy 20 more houses with the same $100,000. Wow!

Let's take a look at the long-term annual appreciation on these two investments. If the value of our one house goes up 3 percent annually and we compound the return, then in 10 years it will have gone from $100,000 to $130,000 in value-- long-term capital gain of $30,000. If we had 20 houses just like that, then we would have 20 times that capital gain or $600,000.

When you leverage other people's money, you dramatically improve your rates of return on your rental properties and build a much larger, potentially more lucrative portfolio.