Do I Need Good Credit to Get Started in Real Estate
A bad credit score is not a problem in real estate. Of course, a traditional home loan is impossible to get if you have a bad credit score. In some places if not all, any score below 700 is not up for consideration. As for real estate investment, a bad credit score is not an insurmountable obstacle. There are auxiliary ways to get started in real estate. The beauty of real estate is its dynamic nature– there are lots of options which gives an investor a lot to choose from regardless of bad credit score. These five options are good ways to engage in real estate despite having a bad credit score.
Hard Money Loan
A hard money loan is easy to obtain contrary to its name. There are private money lenders to give out this type of loan for the sole purpose of real estate investment. This simply means that such money lenders will not give out loans to purchase property for personal use. They usually lend based on how good the deal is and the profitability of the investment.
Given this, good credit is good, but a bad one isn’t an outright no. The investment deal matters more. Another good thing about a hard money loan is the ease of obtaining it. Within a few days, it can be obtained– a major reason why many opt for it.
The lenders care just about the deal, if you have a good investment deal, the loan will be readily available. Of course, as expected, they use the property as collateral. Should you default in your repayment, they will assume control and ownership of your investment– a key reason why they are keen about the returns of the investment– should you misbehave, they won’t run at a loss.
The downside to hard money lenders is the rate of interest and the fact that they won’t cover more than 75% of the property cost. Compared to the traditional home loan, the hard money interest is higher. In some cases, the interest charged could be as high as 15%. Depending on the lender, it may be a bit lower.
To spot a good hard money lender, you can use online avenues or ask for recommendations from trusted individuals. As additional verification method is to ensure the broker has a real estate broker license. Be sure to confirm that no complaints against it have been filed.
Private lenders are more flexible. A private lender can be anyone; a relative, a friend, or anyone looking for a good ROI. These individuals do not usually care about the situation of your credit report. They are usually more concerned about the profitability of the investment and its quick turnaround. Once you can prove to such ones the mode of repayment and good returns, you have a higher chance of getting the loan.
In some cases, some private investors do even not ask for credit history. Another benefit is that the interest rate and other things are negotiable — there are no hard and fast rules.
Find a Partner
If you have a bad credit score and want to invest in real estate, you can partner with someone. The partnership will be with someone who has an excellent credit score. This could be anyone– a family member, friend, or acquaintance. Such would use their good record to obtain the loan for investment. This means your partner is offering resources, in this case, you must have something to contribute also. It could be your expertise in real estate, making good deals, and management.
With the partnership, you can arrange a deal and a profit-sharing arrangement. It is also necessary to make legal documentation and register the business. The business registration helps to distinguish between personal assets and that of the business.
The Seller Financing Method
The seller financing method is a good way to get started in real estate. The seller in this situation is also functioning as the bank. This method affords you to arrange with a property owner who is willing to sell and will accept the payment in bits. This means after purchasing without making a full payment, you are allowed to use the property and pay the owner monthly till the total cost is complete.
Seller Financing is great for persons with a bad credit score because the arrangement doesn’t need much scrutiny since it’s not an actual money loan. To land such deals, attending real estate gatherings is a good place to meet such types of sellers. Other options could be checking out vacant properties. Make contact when you find such sellers and negotiate the terms. The negotiable terms, and not checking credit score are the perks of this method– making participating in real estate easy.
Real Estate Wholesaling
Real estate wholesaling a good way to break into the real estate industry. This approach requires very little capital and no need for a credit score. It requires you to look for sellers then find a buyer. When you find a seller who wants to sell a property at a particular price, then you search for a seller, increase the sales price, close the deal, and take the profit.
Greenhorns in real estate start with wholesaling — using it to build capital and learn some skills and to also get good at making deals. Although not as profitable as other aspects of real estate, it still has a relatively good income flow.
Never let a bad credit score serve as a deterrent to venturing into real estate. There are lots of alternatives –examine the ones analyzed above, and choose any that works best for you.
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