CAN YOU INVEST IN
REAL ESTATE WITH BAD CREDIT? MAY BE… HERE ARE 5 WAYS TO DO IT.
One of the most difficult question as a Realtor I get from
my everyday clients is,” Can we invest in real estate with bad credit?” It’s a great question as majority of the
Canadians have a credit score of less than 600. That’s a large number of people
who are not able to attain mortgage.
So, can you invest in real estate with bad credit?
Well I have good news!
The good news is: YES, you can invest with bad credit.
Here are 5 ways to invest in a property even with bad credit,
as long as you are trying to improve your credit:
·
PARTNERSHIPS:
Partnership or coming together and than
buying or investing is a great way to invest as every individual who comes
together lacks something. Partnership will help fill their void. For you, your
disadvantage may be “bad credit” but maybe there is something that you have
that the other person doesn’t have. Everyone brings something different on the
table “Time, Skills, Research etc.” It’s simple you fill up for something that
the other doesn’t have and he fills up for something which you don’t have.
But while going for partnership when
investing, one needs to be a little careful. Do your research and choose your
partner wisely.
·
SELLER
FINANCING:
Seller financing is the process where the
seller actually agrees to finance the property, rather than making you obtain a
new loan. In essence, the seller agrees to let you make monthly payments to
them until the property is paid off (or the term of the seller-financed loan
ends).
Seller financing can be powerful, as sellers
typically will not ask to see a credit score. However, the best use of a
seller-financed deal is when the sellers own the property free and clear. In
other words, they should not have a mortgage on the property. If they try to
“carry the contract” on the home that they have an existing loan on, their
lender could foreclose due to something known as “the due on sale clause.”
So look for deals where the owner has no mortgage.
·
HARD
MONEY LENDERS:
Hard money lenders are people who give
loans on a very high rate to real estate investors. The rates may vary but
roughly they fall anywhere between 10% and 18%, with less than two year terms. Apart from this, Hard money lenders may also
ask for a large fee, known as “points”, which can add anywhere from 3% to 10%
of the loan amount. Hard money lenders rarely look at the borrower’s credit
score, though it is becoming more common. In reality, the hard money
lender cares most about the security in the deal. They want to know that no
matter what happens, they will make money
·
PRIVATE
MONEY LENDERS:
Just like hard money lenders, private money
lenders are individuals you might know and are looking to achieve a good return
on their investment. Unlike hard money lenders, private money lenders are not
typically real estate professionals who lend money for a business; they simply
are looking to diversify their cash into other investments. Private money
lenders might be your dentist, your mom, your neighbor or someone you’ve built
a relationship with.
·
WHOLESALING:
This is one of the most popular ways of financing
for people with bad credit. Wholesaling is the business of finding great deals,
putting them under contract and quickly “flipping them” to a cash buyer for a
higher amount. Many wholesalers do this entire process without using a
single dollar of their own money or ever needing their credit checked.
But before you head out for this way, you
need to keep few points in mind:
1.
Wholesaling is a JOB: It is like any other job,
if you don’t work hard, you don’t get paid.
2.
Wholesaling is HARD: This is something that requires
time, skills and knowledge. Most important qualities are to know how to talk on
the phone to the seller, sell yourself as a credit solution to their problems,
find rehab costs, find cash buyers and put the entire thing together.
3.
You would need a license as Wholesaling
comprises of legal implications.
So, can you invest in real estate with bad credit?
Yes. However, if your bad credit is a symptom of something
else, fix that first or you’ll never enjoy the true wealth that can come from
real estate investing.
Editor: Neha Charan
Editor: Neha Charan
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