How to Start Investing in Real Estate Regardless of Credit

Here’s another beginning real estate investor’s excuse that I hear from time to time:

But my credit sucks, how am I going to invest in real estate without good credit?

Believe it or not, you can buy property even if you have terrible credit. I am not talking about the traditional way (i.e. go to a mortgage broker or bank, apply for a loan, and see if you can get qualified). I’m talking about using a private or hard money lender to finance a deal for you.

Let me explain the difference between these two money sources.

A hard money lender is someone who is in the business of lending money to investors based on loan to value, not on the individual. Rates will vary depending on your area and contacts, but one of our main sources charges 4 points and 12%. I give him a call with a few details, he typically rides by the property, and drops a check off at closing. Be aware that some hard money lenders may require an appraisal, termite inspection, home inspection, etc. It will just depend on who you use. The one common theme though will be that money is lent based on the property, not your credit score. You can get a loan for the purchase price and for the renovation. We have one lender that gives us the whole renovation budget when we buy the property and one lender that sets up a repair escrow with a draw schedule. Go to your local real estate investors association to network and find these people.

A private lender is simply anyone who you know that would be interested in loaning you money on a good deal. Maybe it’s your mom, dad, brother, friend, neighbor, it doesn’t matter…anyone who wants to make a good investment. We pay most of our private lenders a 12% return on their investment.

And there you have it. Your excuse has been vanquished. No more whining about your credit stopping you from embarking on your real estate investment career.

Category: Real Estate Investment Financing Strategies