How can I make money in real estate with bad credit?
Many people believe that real estate investment is one of the best ways to achieve long-term wealth. One of the most frequent problems would-be investor’s faces, to make money in real estate, is that it usually takes good credit and a substantial track record to buy a property with the best lending terms. There are several ways to get around the credit barrier and get into making money in real estate. Here are some of the best tactics you can use in 2020 for making money in real estate with bad or below-average credit.
Partnerships are one of the best ways to make money in real estate because everyone has something they are lacking. Partnerships help fill that void. For you, perhaps it is your bad credit, but maybe you have something that they don’t have. Time? Skills? Hustle? What can you bring to the table that will help them achieve their goals while you achieve yours?
Of course, when it comes to partnerships, one must be careful that choosing the wrong partner can make you both incredibly dirty! Complete your homework, vet your partner carefully, and as is true with all these tips, only invest in great deals.
Seller financing is the process in which the seller 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.
Hard Money Lenders
Hard money lenders are individuals or businesses that lend money at high-interest rates and short terms to real estate investors. Hard money rates vary but typically fall between 10% and 18% interest, with less than two-year terms (often just six months). Hard money lenders also charge large fees, known as “points,” which can add anywhere from 3 to 10 percent of the loan amount. Many hard money lenders used to be investors themselves, but have moved to the more passive method of simply lending.
Because of the high rates, high fees, and short terms, hard money is ideal for house flippers and those looking to do the BRRRR (buy, rehab, rent, refinance, repeat) method of real estate. This way, the real estate investor can be in and out quickly, cashing out the hard money lender and moving on to the next project.
Private Money Lenders
Similar to hard money, 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 on Bigger Pockets.
So, can you make money 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.
If you are serious about repairing your credit and building better money management skills, you can schedule a coaching call with Real Estate coach SAWAND L. BELCHER